-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kt8zaf/8pT7pyfjkda07ZOQLZaYp7SxcBoaIyLgfRHbXFZ3M3+Ir+B4q0LrKUVx4 w2myUhTDiqPmA0oWp89SJA== 0001036050-99-000858.txt : 19990426 0001036050-99-000858.hdr.sgml : 19990426 ACCESSION NUMBER: 0001036050-99-000858 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990130 FILED AS OF DATE: 19990423 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BON TON STORES INC CENTRAL INDEX KEY: 0000878079 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 232835229 STATE OF INCORPORATION: PA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19517 FILM NUMBER: 99600245 BUSINESS ADDRESS: STREET 1: 2801 E MARKET ST CITY: YORK STATE: PA ZIP: 17402-2406 BUSINESS PHONE: 7177577660 MAIL ADDRESS: STREET 1: P O BOX 2821 CITY: YORK STATE: PA ZIP: 17405-2821 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended Commission File Number January 30, 1999 0-19517 THE BON-TON STORES, INC. 2801 EAST MARKET STREET YORK, PENNSYLVANIA, 17402 (717) 757-7660 INCORPORATED IN PENNSYLVANIA IRS NO. 23-2835229 ____________________ Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value The Registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the past 90 days. Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is contained in Registrant's proxy statement incorporated by reference in Part III of this Form 10-K. As of March 29, 1999, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $71,208,700, based upon the closing price of $7.50 per share on March 29, 1999.* As of March 29, 1999, there were 12,278,120 shares of Common Stock, $.01 par value, and 2,989,853 shares of Class A Common Stock, $.01 par value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE Part II - Portions of the Registrant's Annual Report to security holders for the Fiscal Year Ended January 30, 1999 ("Annual Report"). Part III - Portions of the Registrant's Proxy Statement with respect to its 1999 Annual Meeting of Shareholders ("Proxy Statement"). ____________________________ * Calculated by excluding all shares that may be deemed to be beneficially owned by executive officers and directors of the Registrant, without conceding that all such persons are "affiliates" of the Registrant for purposes of the federal securities laws. - -------------------------------------------------------------------------------- Certain information included in this Form 10-K contains statements that are forward looking. Such forward-looking information involves certain risks and uncertainties that could significantly affect anticipated results in the future, including, but not limited to, uncertainties affecting retail generally (such as consumer confidence and demand for soft goods); uncertainties associated with opening new stores or expanding and remodeling existing stores; and competition within the markets in which the Company's stores are located. References to a year in this Form 10-K refer to the Company's fiscal year, which is the 52 or 53 week period ending on the Saturday nearer January 31 of the following calendar year (e.g. a reference to 1998 is a reference to the fiscal year ended January 30, 1999). PART I ITEM 1. BUSINESS GENERAL The Bon-Ton Stores, Inc., together with its subsidiaries (collectively, the "Company" or "The Bon-Ton"), is the successor to S. Grumbacher & Son, a family business founded in 1898. The Company is a leading operator of quality fashion department stores offering moderate and better apparel, home furnishings, cosmetics, accessories and shoes in secondary markets. In many of its markets, The Bon-Ton is the primary destination for branded fashion merchandise such as Calvin Klein, Liz Claiborne, Nautica, Ralph Lauren and Tommy Hilfiger. The Company presently operates 65 quality fashion department stores in secondary markets with 35 stores in Pennsylvania, 24 in New York, three stores in Maryland and one store in each of Massachusetts, West Virginia and New Jersey. The Company's strategy focuses on being the premier fashion retailer in smaller secondary markets that demand, but often have limited access to, better branded merchandise. The Bon-Ton provides an in-depth selection of high-quality, well-known branded merchandise at competitive prices in upscale shopping environments. None of The Bon-Ton's stores are located in major metropolitan markets, and most are located in smaller secondary markets. The Company's executive offices are located at 2801 East Market Street, York, Pennsylvania. MERCHANDISING The Bon-Ton stores offer moderate and better fashion apparel, home furnishings, cosmetics, accessories, shoes and other items. The Company's sales of apparel constituted 62.9% of sales in 1998. The chart below illustrates the sales by product category for 1998, 1997 and 1996. 2
MERCHANDISE CATEGORY 1998 1997 1996 - ----------------------- ------ ------ ------ Women's clothing.................... 27.0% 28.0% 27.4% Men's clothing...................... 18.6 17.8 17.7 Home................................ 12.6 12.2 12.0 Cosmetics........................... 9.7 9.7 9.8 Children's clothing................. 7.0 7.0 7.4 Accessories......................... 7.3 7.3 7.9 Junior's clothing................... 5.3 5.5 5.5 Intimate apparel.................... 5.0 5.0 5.3 Shoes............................... 5.0 5.0 4.7 Fine Jewelry........................ 2.1 2.0 1.7 Beauty Salon........................ 0.4 0.5 0.6 ----- ----- ----- Total............................ 100.0% 100.0% 100.0% ===== ===== =====
The Company carries a number of highly recognized brand names, including Calvin Klein, Cole/./Haan, Estee Lauder, Jones New York, Kenneth Cole, Liz Claiborne, Nautica, Nine West, Ralph Lauren, Steve Madden, Tommy Hilfiger and Via Spiga, and within these brands chooses collections which balance fashion, price and selection. The Company also is placing greater emphasis on vendor shops within its stores from key vendors such as Calvin Klein, Nautica, Ralph Lauren and Tommy Hilfiger. In such vendor shops merchandise is grouped and positioned in preferred floor locations to provide enhanced visibility with distinctive, vendor-specific fixturing, signage and displays. Complementing its branded merchandise, the Company's exclusive private brand merchandise provides fashion at competitive pricing under names such as Andrea Viccaro, Jenny Buchanan, Susquehanna Trail Outfitters and Susquehanna Blues. The Bon-Ton views its private brand merchandise as a strategic addition to its strong array of highly recognized, quality national brands and as an opportunity to increase brand exclusiveness, customer loyalty and competitive differentiation. Private brand merchandise represented approximately 17.8% of apparel sales in 1998. The Company's business, like that of most retailers, is subject to seasonal fluctuations, with the major portion of sales and income realized during the latter half of each fiscal year, which includes the back-to-school and holiday seasons. MARKETING The Company attracts customers by offering services such as free gift wrap, special order capability and in-store alterations. In addition, through its "Certified Value" program, the Company maintains everyday value prices on staple items such as turtlenecks, T-shirts, shorts and denim within major product groups. The Company conducts its advertising and promotional programs through newspaper advertisements, direct mail and, to a lesser extent, local television and radio. The Company maintains an in-house advertising group that produces substantially all of its print advertising. The effectiveness of the Company's direct mail efforts has been greatly enhanced through database management systems. By accurately identifying the predictors of response to its direct mail pieces, the Company now has the ability to rank, score and select customers with event-specific information. 3 CUSTOMER CREDIT Bon-Ton customers may pay for their purchases with The Bon-Ton proprietary credit card, Visa, Mastercard, cash or check. The Bon-Ton credit card holders generally constitute the Company's most loyal and active customers; during 1998, the average dollar amount for proprietary credit card purchases substantially exceeded the average dollar amount for cash purchases. The Company believes that its credit card is a particularly productive tool for customer segmentation and target marketing. The following table summarizes the percentage of total sales generated by payment type:
TYPE OF PAYMENT ---------------- 1998 1997 1996 ---- ---- ---- Bon-Ton credit card 48% 50% 51% Visa, Mastercard, American Express* 23 22 20 Cash or check 29 28 29 ---- ---- ---- Total 100% 100% 100% ==== ==== ====
*The Company ceased accepting American Express in 1998. During 1998, the Company issued 244,700 Bon-Ton credit cards for newly opened accounts. COMPETITION The Company faces competition for customers from traditional department stores such as those operated by J. C. Penney Company, Inc. ("JC Penney"), Federated Department Stores Inc. ("Federated"), The May Department Stores Company ("May") and Sears, Roebuck and Co. ("Sears"), from regional department stores such as Boscov's Department Store, Inc., and from specialty stores and catalogue and other retailers. In addition, the Company faces competition for store locations from other department stores and other large retailers. In a number of its markets, the Company competes for customers with national department store chains which are better established in such markets than the Company and which offer a similar mix of better branded merchandise as the Company. In other markets, the Company faces potential competition from national chains that to date have not entered such markets. In all markets, the Company generally competes for customers with department stores offering moderately priced goods. Many of the Company's competitors are units of large national or regional chains that may have substantially greater financial and other resources than the Company. Some of the Company's competitors have greater leverage with vendors than the Company, which may allow such competitors to obtain merchandise more easily or on better terms than the Company. In several of the Company's markets, the Company's stores compete with other department stores in the immediate vicinity which are larger and/or have a superior location in the relevant mall or local shopping area. The Company believes it compares favorably with its competitors with respect to quality, depth and breadth of merchandise, prices for comparable quality merchandise, customer service and store environment. The Company also believes its knowledge of smaller secondary markets, developed over its many years of operation, and its focus on secondary markets as its primary area of operation, give it an advantage that cannot be readily duplicated. 4 ASSOCIATES As of January 30, 1999, the Company had approximately 3,600 full-time and 5,400 part-time associates. The Company also employs additional part-time clerks and cashiers during peak periods. None of the Company's associates are represented by a labor union. The Company believes that its relationship with its associates is good. ITEM 2. PROPERTIES. The Company's stores, which all operate under the name "The Bon-Ton", vary in size from approximately 45,000 to 160,000 square feet. All but three of The Bon-Ton stores are anchor tenants in shopping malls or are in, or adjacent to, strip shopping centers. The Company configures its stores to provide a logical flow from department to department and continually monitors its product layouts in an attempt to make shopping easier and to maximize sales per square foot. The Company maintains a corporate visual merchandising staff and at least one associate in each store responsible for visual presentation. The Company continually evaluates all aspects of its visual merchandising program to provide an aesthetically pleasing atmosphere for its customers. The following table sets forth the number of stores at the beginning and end of each of the last five years:
Fiscal Year 1998 1997 1996 1995 1994 - ----------- ---- ---- ---- ---- ---- Number of stores: Beginning of year 64 64 68 69 35 Additions 2 0 1 4 35 Closings (1) 0 (5) (5) (1) ---- ---- ---- ---- ---- End of year 65 64 64 68 69
The Company plans to maintain its growth by expanding and upgrading its existing stores and by opening new stores and will consider acquisitions of department store companies or their real estate assets if and when such opportunities arise. The Company's market positioning strategy has been to locate its new stores or acquire existing companies or their stores in secondary markets generally within or contiguous to its existing areas of operations. In March 1998, the Company opened a 60,100 square foot store in the Jamestown, New York market, and in November 1998, the Company opened a 50,600 square foot store in Westfield, Massachusetts. The Company closed its Rome, Georgia store in April 1998. The Company anticipates opening new stores in Glens Falls, New York and Pottstown, Pennsylvania, and expanding its existing stores in Butler, Pennsylvania and Hagerstown, Maryland, during 1999. In addition, the Company has acquired the leases for department stores in Hamden, Connecticut, Brick, New Jersey and Red Bank, New Jersey from Steinbach Stores, Inc. The Company plans to renovate these three stores and open them for business in the fall of 1999. The following table provides certain information regarding the Company's properties: 5 STORE PROPERTIES ----------------
APPROXIMATE GROSS SQUARE YEAR OPENED MARKET LOCATION FEET OR ACQUIRED - ------ -------- ------------- ------------- PENNSYLVANIA Allentown South Mall 111,000 1994 Bethlehem Westgate Mall 107,100 1994 Bloomsburg Columbia Mall 46,100 1988 Butler Clearview Mall 100,500/(1)/ 1982 Carlisle Carlisle Plaza Mall 59,900 1977 Chambersburg Chambersburg Mall 55,600 1985 Doylestown Doylestown Shopping Center 55,500 1994 Easton Palmer Park Mall 120,200 1994 Greensburg Westmoreland Mall 99,900 1987 Hanover North Hanover Mall 67,600 1971 Harrisburg Camp Hill (Free Standing) 145,200 1987 Colonial Park Shopping Center 136,500 1987 Indiana Indiana Mall 60,400 1979 Johnstown The Galleria 80,900 1992 Lancaster Park City Center 144,800 1992 Lebanon Lebanon Plaza Mall 53,700 1994 Lewistown Central Business District 46,700 1972 Oil City Cranberry Mall 45,200 1982 Pottstown Coventry Mall 88,300 1999/(2)/ Pottsville Schuylkill Mall 61,100 1987 Quakertown Richland Mall 88,100 1994 Reading Berkshire Mall 159,400 1987 Scranton Keyser Oak Plaza 57,600 1980 State College Nittany Mall 70,200 1994 Stroudsburg Stroud Mall 87,000 1994 Sunbury Susquehanna Valley Mall 90,000 1978 Trexlertown Trexler Mall 54,000 1994 Uniontown Uniontown Mall 71,000 1976 Warren Warren Mall 50,000 1980 Washington Crown Washington Center 78,100 1987 Williamsport Lycoming Mall 60,100 1986 Wilkes-Barre Midway Shopping Center 66,000 1987 Wyoming Valley Mall 159,500 1987 York York Galleria 128,200 1989 Queensgate Shopping Center 85,100 1962 West Manchester Mall 80,200 1981 NEW YORK Binghamton Oakdale Mall 80,000 1981 Buffalo Northtown Plaza 100,800 1994 Walden Galleria 150,000 1994 Eastern Hills Mall 151,200 1994 McKinley Mall 97,200 1994 Sheridan/Delaware Plaza 124,100 1994 Southgate Plaza 100,500 1994 Elmira Arnot Mall 74,800 1995 Glens Falls Aviation Mall 80,300 1999/(3)/ Ithaca Pyramid Mall 52,400 1991 Jamestown Chautauqua Mall 60,100 1998 Lockport Lockport Mall 82,000 1994 Massena St. Lawrence Centre 51,000 1994 Niagara Falls Summit Park Mall 88,100 1994 Olean Olean Mall 73,000 1994 Rochester The Mall at Greece Ridge Center 144,600 1996 The Marketplace Mall 100,000 1995 Irondequoit Mall 102,600 1995 Eastview Mall 118,900 1995
6
APPROXIMATE GROSS SQUARE YEAR OPENED MARKET LOCATION FEET OR ACQUIRED - ------ -------- -------------- ------------- Saratoga Springs Wilton Mall 71,700 1993 Syracuse Carousel Center 80,000 1994 Camillus Mall 64,700 1994 Great Northern Mall 98,400 1994 Shoppingtown Mall 70,100 1994 Watertown Salmon Run Mall 50,200 1992 MARYLAND Cumberland Country Club Mall 60,900 1979 Frederick Frederick Towne Mall 77,900 1972 Hagerstown Valley Mall 123,000/(4)/ 1974 WEST VIRGINIA Martinsburg Martinsburg Mall 65,800 1994 CONNECTICUT Hamden Hamden Mart 58,900 1999/(2)/ NEW JERSEY Brick Brick Plaza 53,500 1999/(2)/ Phillipsburg Phillipsburg Mall 65,000 1994 Red Bank Freestanding 33,300 1999/(2)/ MASSACHUSETTS Westfield Westfield Shops 50,600 1998
Footnotes: - --------- /(1)/ Includes 40,000 square foot expansion expected to be completed in May 1999. /(2)/ Anticipated opening date is in August 1999. /(3)/ Anticipated opening date is in April 1999. /(4)/ Includes 30,000 square foot expansion expected to be completed in August 1999. The Company leases 62 of its stores and owns eight stores, three of which are subject to ground leases. The Company leases a total of 154,600 square feet for its executive and administrative offices located in York, Pennsylvania, leases the land (but owns the building) for its 143,700 square foot distribution center in York, Pennsylvania, and leases its 326,000 square foot distribution center in Allentown, Pennsylvania. The distribution centers currently operate on one shift; however, by adding second shifts, the capacity of the distribution centers can be at least doubled. There is substantial space for additional expansion at the York and Allentown sites and additional truck docks in place not currently used in Allentown. 7 ITEM 3. LEGAL PROCEEDINGS. The Company has been named, together with other department stores and Nine West Group, Inc., a defendant in a number of antitrust class action lawsuits filed in February 1999, which have been consolidated in the United States District Court for the Southern District of New York. These lawsuits allege that the defendants engaged in conduct in violation of the antitrust laws relating to the sale of shoes manufactured by Nine West, and seek unspecified damages against all defendants. The Company and its counsel believe these claims are without merit and intends to vigorously defend these lawsuits. The Company is party to other legal proceedings and claims which arise during the ordinary course of business. The Company does not expect the ultimate outcome of all such litigation and claims to have a material adverse effect on the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM A. EXECUTIVE OFFICERS OF THE COMPANY. Certain information with respect to the executive officers of the Company is provided below:
NAME AGE POSITION - --------------------------------- --- ------------------------------- Heywood Wilansky 51 President - Chief Executive Officer and Director M. Thomas ("Tim") Grumbacher 59 Chairman of the Board and Director Michael L. Gleim 56 Vice Chairman - Chief Operating Officer and Director Douglas Lamm 52 Executive Vice President - Softlines Merchandise James H. Baireuther 52 Senior Vice President - Chief Financial Officer Jack Boonshaft 56 Senior Vice President - Stores J. Rick Cusick 41 Senior Vice President - General Merchandise Manager H. Stephen Evans 49 Senior Vice President - Real Estate, Legal and Governmental Affairs Elizabeth R. Feher 38 Senior Vice President - General Merchandise Manager Steven D. Goldsmith 32 Senior Vice President - General Merchandise Manager William T. Harmon 44 Senior Vice President - Sales Promotion, Marketing and Strategic Planning
8 Cheryl Jan Ladnier 50 Senior Vice President - Product Development, Fashion Merchandising and Special Events Patrick J. McIntyre 54 Senior Vice President - Chief Information Officer Ryan J. Sattler 54 Senior Vice President - Operations Stephen M. Sloane 52 Senior Vice President - General Merchandise Manager Stephanie Stough 47 Senior Vice President - Merchandise Planning and Control Thomas R. Tortoriello 57 Senior Vice President - Human Resources
Mr. Wilansky joined the Company in August 1995 as President, Chief Executive Officer and a Director. Prior to joining the Company, Mr. Wilansky was employed by May for more than 19 years. From 1992 to August 1995, he was President and Chief Executive Officer of the Foley's division of May, and from 1991 to 1992, he was President and Chief Executive Officer of the Filene's division of May. Prior to that, he was with the Hecht's and Lord & Taylor divisions of May. Mr. Grumbacher joined the Company in 1961 and has been Chairman of the Board since August 1991. From 1977 to 1989, he was President and from 1985 to 1995, he was Chief Executive Officer of the Company. Mr. Gleim joined the Company in 1989 as Executive Vice President and Chief Administrative Officer. He became Senior Executive Vice President and a Director in 1991, and Vice Chairman and Chief Operating Officer in December 1995. Prior to joining the Company, Mr. Gleim was employed by Federated for more than 25 years. Mr. Lamm joined the Company as Senior Vice President - General Merchandise Manager in October 1995 and was appointed Executive Vice President - Softlines Merchandise in February 1998. Prior to joining the Company, Mr. Lamm owned a chain of women's large size apparel boutiques from 1988 to 1995, and from 1984 to 1988 was Senior Vice President and General Merchandise Manager of Venture Stores, Inc. in St. Louis. Mr. Baireuther joined the Company as Senior Vice President - Chief Financial Officer in June 1996. From September 1994 until he joined the Company, Mr. Baireuther was Senior Vice President - Chief Financial Officer at DAC Vision, a manufacturer and distributor of optical supplies. Prior to that, he was Executive Vice President - Chief Financial Officer for Eye Care Centers of America, a retail optical superstore chain and wholly-owned subsidiary of Sears, from 1989 to 1994. From 1969 to 1989, Mr. Baireuther held a variety of positions with Sears including Director of Mergers and Acquisitions, Manager of Corporate Financial Analysis and Controller. Mr. Boonshaft joined the Company in January 1996 as Vice President - Stores' Merchandising and was named Senior Vice President - Stores in February 1998. Prior to joining the Company, Mr. Boonshaft was with the Hecht's division of May, where his last position was Regional Vice President - Stores from 1986 to 1995. Mr. Cusick joined the Company in October 1996 as Divisional Vice President - - Divisional Merchandise Manager and was named Senior Vice President - General Merchandise Manager in July 1997. Prior to joining the Company, Mr. Cusick was with Marshall's from September 1995 to February 1996. From 1980 to 1995, Mr. Cusick held a variety of merchandising positions with Filene's, Foley's and The Broadway. 9 Mr. Evans joined the Company as Senior Vice President - Real Estate in 1991 and was named Senior Vice President - Real Estate, Legal and Governmental Affairs in 1993. Ms. Feher joined the Company as Divisional Vice President - Divisional Merchandise Manager in October 1994 and was named Senior Vice President - General Merchandise Manager in February 1998. Ms. Feher was previously associated with Hess's Department Stores, Inc., where she served as Vice President - Merchandise Manager for over six years. Mr. Goldsmith joined the Company in February 1997 as Divisional Vice President - Divisional Merchandise Manager and was named Senior Vice President - General Merchandise Manager in March 1999. From November 1992 to February 1997, Mr. Goldsmith was with Foley's, where he held various positions including buyer and Director of Merchandising Analysis. From 1988 to November 1992, Mr. Goldsmith was with Filene's and Lord & Taylor. Mr. Harmon joined the Company as Senior Vice President - Sales Promotion, Marketing and Strategic Planning in June 1997. From December 1992 to October 1994, Mr. Harmon was Vice President, and from November 1994 to June 1997, Senior Vice President - Merchandise Planning, and during that entire period, Assistant to the President, of Foley's, and from June 1989 to December 1992 he was Vice President - Assistant to the President of Filene's. Prior to that, he was employed by McKinsey & Company for seven years. Ms. Ladnier joined the Company as Senior Vice President - Sales Promotion and Marketing in December 1993 and was subsequently named Senior Vice President - - Marketing and Corporate Communications. In May 1997 she was named Senior Vice President - Product Development, Fashion Merchandising and Special Events. Mr. McIntyre joined the Company as Senior Vice President - Chief Information Officer in June 1997. From 1988 to June 1997, Mr. McIntyre was Senior Vice President - Chief Information Officer for the Cato Corporation, a women's specialty retailer. Prior to that, he held similar positions with the Higbee Company and Burdine's Department Store. Mr. Sattler joined the Company as Vice President - Distribution and Operations in 1986 and was promoted to Senior Vice President - Operations in 1990. Mr. Sloane joined the Company as Senior Vice President - General Merchandise Manager in February 1997. From December 1995 until February 1997, Mr. Sloane was Vice President - General Merchandise Manager at Dick's Clothing & Sporting Goods, and from July 1995 until December 1995 he was Vice President - General Merchandise Manager at McRae's Department Stores. Prior to that, Mr. Sloane was associated with May for over 17 years, having most recently served as Vice President-Merchandising at Foley's. Ms. Stough joined the Company in March 1987 as Director of Merchandise Planning and Control. In February 1991 she was promoted to Vice President - Merchandise Planning and Control and in May 1997 she was promoted to Senior Vice President - Merchandise Planning and Control. Mr. Tortoriello joined the Company in June 1998 as Senior Vice President - Human Resources. From April 1995 until he joined the Company, Mr. Tortoriello was Senior Vice President of Organization Development at the Handleman Company, a distributor to retailers, and from January 1993 to June 1994 he was Senior Vice President, Human Resources at Office Max. 10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the Nasdaq National Market (symbol: BONT). There is no established public trading market for the Company's Class A Common Stock. The Class A Common Stock is convertible on a share for share basis into Common Stock. The following table sets forth the range of the sales price of the Common Stock as furnished by Nasdaq:
1998 ------------------ HIGH LOW -------- -------- 1/st/ Quarter $18.000 $13.750 2/nd/ Quarter 17.625 11.250 3/rd/ Quarter 14.000 6.000 4/th/ Quarter 9.250 6.000 1997 ------------------ HIGH LOW -------- -------- 1/st/ Quarter $ 7.375 $ 5.625 2/nd/ Quarter 9.125 6.250 3/rd/ Quarter 15.000 7.875 4/th/ Quarter 17.500 11.750
On March 29, 1999, there were approximately 318 shareholders of record of the Company's Common Stock and five shareholders of record of the Company's Class A Common Stock. The Company has not paid cash dividends since its initial public offering in September 1991 and does not anticipate paying any cash dividends in the foreseeable future. The Company intends to retain its earnings, if any, for the operation and expansion of its business. The payment and rate of future dividends, if any, are subject to the discretion of the Board of Directors and will depend upon the Company's earnings, financial condition, capital requirements, contractual restrictions under its current indebtedness and other factors. The Company's revolving credit agreement contains restrictions on the Company's ability to pay dividends and make other distributions. ITEM 6. SELECTED FINANCIAL DATA. Item 6 is hereby incorporated by reference to the material under "Selected Consolidated Financial and Operating Data" on page 20 of the Company's Annual Report attached hereto as Exhibit 13.1. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Item 7 is hereby incorporated by reference to the material under "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 21 through 26 of the Company's Annual Report, attached hereto as Exhibit 13.2. 11 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Item 7A is hereby incorporated by reference to the material under "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 21 through 26 of the Company's Annual Report, attached hereto as Exhibit 13.2. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Item 8 is hereby incorporated by reference to the Report of Independent Public Accountants, Consolidated Financial Statements and Notes thereto on pages 27 through 44 of the Company's Annual Report, attached hereto as Exhibit 13.3. ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information regarding executive officers called for by Item 401 of Regulation S-K is included in Part I as Item A, in accordance with General Instruction G(3) to Form 10-K. The remainder of the information called for by this Item will be contained in the Company's Proxy Statement and is hereby incorporated by reference thereto. ITEM 11. EXECUTIVE COMPENSATION. The information called for by this Item will be contained in the Company's Proxy Statement and is hereby incorporated by reference thereto (other than the information called for by Item 402(i), (k) and (l) of Regulation S-K, which is not incorporated herein by reference). ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information called for by this Item will be contained in the Company's Proxy Statement and is hereby incorporated by reference thereto. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information called for by this Item will be contained in the Company's Proxy Statement and is hereby incorporated by reference thereto. 12 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) The following documents are filed as part of this report: 1. Consolidated Financial Statements -- See Item 8 above. 2. Consolidated Financial Statement Schedules -- See the Index to Consolidated Financial Statement Schedules on page F-1. 3. Exhibits: The following exhibits are filed herewith or incorporated by reference as indicated below:
EXHIBIT DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE NO. 3.1 Articles of Incorporation Exhibit 3.1 to the Company's Report on Form 8-B, File No. 0-19517 ("Form 8-B") 3.2 Bylaws Exhibit 3.2 to Form 8-B 10.1 Shareholder's Agreement by and among the Exhibit 10.3 to Amendment No. 2 to the Company's Company and the shareholders named therein Registration Statement on Form S-1, File No. 33-42142 ("1991 Form S-1") * 10.2 (a) Employment Agreement between the Company Exhibit 99 to the Company's Report on Form 8-K and Heywood Wilansky dated March 26, 1998 * (b) The Bon-Ton Stores, Inc. Supplemental Exhibit 10.2(b) to the Company's Registration Executive Retirement Plan for Heywood Wilansky Statement on Form S-1, File No. 333-48811 ("1998 Form S-1") * (c) The Bon-Ton Stores, Inc. Five Year Cash Bonus Exhibit 10.2(c) to 1998 Form S-1 Plan for Heywood Wilansky * (d) The Bon-Ton Stores, Inc. Performance Based Stock Exhibit 4 to the Company's Registration Statement Incentive Plan for Heywood Wilansky on Form S-8, File No. 333-58591 * 10.3 (a) Employment Agreement between the Company and Exhibit 10.4 to Form 8-B Michael L. Gleim * (b) First Amendment to Employment Agreement Exhibit 10.1 to the Company's Quarterly Report on between the Company and Michael L. Gleim Form 10-Q for the quarter ended October 31, 1998 ("Form 10-Q")
13 * 10.4 Form of severance agreement between the Exhibit 10.14 to Form 8-B Company and certain of its executive officers * 10.5 (a) Amended and Restated 1991 Stock Option and Exhibit 4.1 to the Company's Registration Restricted Stock Plan Statement on Form S-8, File No. 333-36633 * (b) Phantom Equity Replacement Stock Option Plan Exhibit 10.18 to 1991 Form S-1 10.6 Ground Leases for distribution center located in Exhibit 10.12 to 1991 Form S-1 York, Pennsylvania between the Company and M. Thomas Grumbacher, as amended 10.7 Ground Lease for York Galleria store, York, Exhibit 10.14 to 1991 Form S-1 Pennsylvania between the Company and MBM Land Associates Limited Partnership 10.8 (a) Sublease of Butler, Pennsylvania store between Exhibit 10.15 to 1991 Form S-1 the Company and M. Thomas Grumbacher (b) First Amendment to Butler, Pennsylvania sublease Exhibit 10.21 to Amendment No. 1 to 1991 Form S-1 (c) Corporate Guarantee with respect to Butler, Exhibit 10.24 to Amendment No. 1 to 1991 Form S-1 Pennsylvania lease 10.9 (a) Sublease of Oil City, Pennsylvania store between Exhibit 10.16 to 1991 Form S-1 the Company and M. Thomas Grumbacher (b) First Amendment to Oil City, Pennsylvania sublease Exhibit 10.22 to Amendment No. 1 to 1991 Form S-1 (c) Corporate Guarantee with respect to Oil City, Exhibit 10.26 to Amendment No. 1 to 1991 Form S-1 Pennsylvania lease * 10.10 The Company's Profit Sharing/Retirement Savings Exhibit 10.24 to the Company's Annual Report on Plan, amended and restated as of July 1, 1994 Form 10-K for the fiscal year ended January 28, 1995 ("1994 Form 10-K") 10.11 (a) Amended and Restated Receivables Purchase Exhibit 10.16(a) to Amendment No. 2 to 1998 Form Agreement dated as of January 12, 1995 among The S-1 Bon-Ton Receivables Corp., The Bon-Ton Receivables Partnership, L.P., Falcon Asset Securitization Corporation, The First National Bank of Chicago, and the other financial institutions party thereto (b) Amendment dated as of June 30, 1995 to Amended Exhibit 10.16(b) to Amendment No. 1 to 1998 Form and Restated Receivables Purchase Agreement S-1 * 10.12 Management Incentive Plan and Addendum to Exhibit 10.13 to the Company's Annual Report on Management Incentive Plan Form 10-K for the fiscal year ended February 1, 1997 ("1996 Form 10-K") * 10.13 The Bon-Ton Stores, Inc. Long-Term Incentive Plan Exhibit 10.14 to 1996 Form 10-K For Principals
14 10.14 (a) Credit Agreement dated as of April 15, 1997 among Exhibit 10.1 to the Company's Quarterly Report on the Company, Adam, Meldrum & Anderson Co., Inc., Form 10-Q for the quarter ended May 3, 1997 and The Bon-Ton Stores of Lancaster, Inc., the Other Credit Parties Signatory thereto, the Lenders Signatory thereto from time to time, the First National Bank of Boston and General Electric Capital Corporation (b) First Amendment to Credit Agreement Exhibit 10.3(b) to 1998 Form S-1 (c) Second Amendment to Credit Agreement Exhibit 10.3(c) to 1998 Form S-1 (d) Third Amendment to Credit Agreement Exhibit 10.3(d) to 1998 Form S-1 (e) Fourth Amendment to Credit Agreement Exhibit 10.2 to Form 10-Q (f) Fifth Amendment to Credit Agreement
13.1 Page 20 of the Company's Annual Report. 13.2 Pages 21 through 26 of the Company's Annual Report. 13.3 Pages 27 through 44 of the Company's Annual Report. 21. Subsidiaries of the Registrant. 23. Consent of Arthur Andersen LLP. 27. Financial Data Schedule - Year ended January 30, 1999. (b) Reports on Form 8-K filed during the fourth quarter. None _____________________ * Constitutes a management contract or compensatory plan or arrangement. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE BON-TON STORES, INC. Dated: April 23, 1999 By: /s/ Heywood Wilansky ----------------------- Heywood Wilansky President and Chief Executive Officer 15 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Capacity Date - --------- -------- ---- /s/ Heywood Wilansky President, Chief Executive April 23, 1999 - -------------------------- Heywood Wilansky Officer and Director (principal executive officer) /s/ M. Thomas Grumbacher Chairman of the Board April 23, 1999 - -------------------------- M. Thomas Grumbacher and Director /s/ Samuel J. Gerson Director April 23, 1999 - -------------------- Samuel J. Gerson /s/ Michael L. Gleim Vice Chairman, Chief April 23, 1999 - -------------------- Michael L. Gleim Operating Officer and Director /s/ Lawrence J. Ring Director April 23, 1999 - -------------------- Lawrence J. Ring /s/ Robert C. Siegel Director April 23, 1999 - -------------------- Robert C. Siegel /s/ Leon D. Starr Director April 23, 1999 - ----------------- Leon D. Starr /s/ Leon F. Winbigler Director April 23, 1999 - --------------------- Leon F. Winbigler /s/ Thomas W. Wolf Director April 23, 1999 - ------------------ Thomas W. Wolf /s/ James H. Baireuther Senior Vice President April 23, 1999 - ----------------------- James H. Baireuther and Chief Financial Officer (principal financial and accounting officer) 16 INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULE REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS................................... F-2 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS............................ F-3 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE To the Shareholders of The Bon-Ton Stores, Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements of The Bon-Ton Stores, Inc.'s included in this annual report on Form 10-K, and have issued our report thereon dated March 2, 1999 (except with respect to the matter discussed in Note 16 to the consolidated financial statements, as to which the date is April 7, 1999). Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the accompanying index is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Philadelphia, PA March 2, 1999 F-2 SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS THE BON-TON STORES, INC. AND SUBSIDIARIES
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F - -------- ---------- ---------- -------- ---------- -------- BALANCE AT CHARGED TO BALANCE AT BEGINNING COSTS OTHER END OF CLASSIFICATION OF PERIOD & EXPENSES INCREASE DEDUCTIONS PERIOD - -------------- ---------- ---------- -------- ---------- -------- Year ended February 1, 1997: Allowance for doubtful accounts.................. $3,113,000 $5,018,000/(1)/ $ --- $(5,362,000) /(2)/ $2,769,000 Reserve for store closing... $9,570,000 $ --- $ --- $(2,586,000) /(3)/ $6,984,000 Year ended January 31, 1998: Allowance for doubtful accounts.................. $2,769,000 $3,549,000/(1)/ $ --- $(4,341,000) /(2)/ $1,977,000 Reserve for store closing... $6,984,000 $ --- $ --- $(1,513,000) /(3)/ $5,471,000 Year ended January 30, 1999: Allowance for doubtful accounts.................. $1,977,000 $8,851,000/(1)/ $ --- $(7,136,000) /(2)/ $3,692,000 Reserve for store closing... $5,471,000 $ --- $ --- $(2,663,000) /(3)/ $2,808,000
___________________ NOTES: /(1)/ Provision for loss on credit sales. /(2)/ Uncollectible accounts, written off, net of recoveries. /(3)/ Store closing expenses, net of monies received from asset liquidation. F-3 EXHIBIT INDEX Exhibit Description - ------- ----------- 10.14(f) Fifth Amendment to Credit Agreement 13.1 Page 20 of the Company's Annual Report. 13.2 Pages 21 through 26 of the Company's Annual Report. 13.3 Pages 27 through 44 of the Company's Annual Report. 21. Subsidiaries of the Registrant 23. Consent of Arthur Andersen LLP 27. Financial Data Schedule - Year Ended January 30, 1999 EX-10.14(F) 2 FIFTH AMENDMENT TO CREDIT AGREEMENT EXHIBIT 10.14(f) FIFTH AMENDMENT TO THE CREDIT AGREEMENT FIFTH AMENDMENT, dated as of April 7, 1999, among THE BON-TON DEPARTMENT STORES, INC. and THE BON-TON STORES OF LANCASTER, INC. (collectively, the "Borrowers"), the other Credit Parties party to the Credit Agreement referred to below, the Lenders party to such Credit Agreement and GENERAL ELECTRIC CAPITAL CORPORATION as Administrative Agent and Lender. W I T N E S S E T H : - - - - - - - - - - WHEREAS, Adam, Meldrum & Anderson Co., Inc. have merged with and into The Bon-Ton Department Stores, Inc.; and WHEREAS, the parties hereto have entered into that certain Credit Agreement, dated as of April 15, 1997 (such Agreement, as amended, supplemented or otherwise modified from time to time, being hereinafter referred to as the "Credit Agreement," and capitalized terms defined therein and not otherwise defined herein are used herein as therein defined); and WHEREAS, the Borrowers desire to have the Lenders amend certain provisions of the Credit Agreement; and WHEREAS, the Lenders have agreed to such amendment upon the terms and subject to the conditions provided herein; and WHEREAS, certain Lenders have assigned all or a portion of their interest in the Loans to certain other Lenders, which assignment shall have become effective immediately prior to the effectiveness of this amendment, and the Commitment of each Lender is set forth next to its signature herein. NOW, THEREFORE, in consideration of the premises, covenants and agreements contained herein, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. Amendment. The Lenders, the Agents, the Borrowers and the --------- other Credit Parties hereby agree to the following amendments to the Credit Agreement: (a) Section 1.3(b)(ii) is hereby amended by deleting the reference to "Section 6.8" on the third line thereof and inserting in lieu thereof "Section - ------------ ------- 6.8(a)-(g)),". - ---------- (b) Section 1.5(a) is hereby amended by deleting the existing grid in its entirety and amending it as follows: "If Interest Level of Coverage Ratio is: Applicable Margins: ----------------- ------------------ Greater than 4.5:1.0 I Greater than 4.0:1.0 but less than or equal to 4.49 II Greater than 3.5:1.0 but less than or equal to 3.99 III Greater than 2.75:1.0 but less than or equal to 3.49 IV Less than 2.74 V
Level I Level II Level III Level IV Level V ------- -------- --------- -------- ------- Applicable Revolver Index Margin 0.00% 0.00% 0.25% 0.50% 0.75% Applicable Revolver LIBOR Margin 1.25% 1.50% 1.75% 2.00% 2.25% Applicable L/C Margin 1.25% 1.50% 1.50% 1.50% 1.50% Applicable Unused Facility Fee 0.25% 0.25% 0.375% 0.375% 0.375%"
(c) Section 6.3(a)(vii), relating to interest rate swaps, is hereby amended by deleting the words "$50 million" and inserting in lieu thereof "$100 million". (d) Section 6.4(b) is hereby amended by deleting ", other than to Heywood Wilansky as to whom such maximum shall be $1,000,000" and inserting in lieu thereof ", other than to Heywood Wilansky as to whom such maximum shall be $2,000,000". (e) (i) Section 6.8 is hereby amended by deleting the word "and" immediately prior to "(g)" and inserting a comma in lieu thereof, and adding the following clause (h) at the end of the first sentence: "and (h) the sale, transfer, conveyance or other disposition of Equipment, Fixtures or Real Estate by Borrowers in connection with the sale of a store location up to an aggregate amount equal to $30,000,000". 2 (ii) The last sentence of section 6.8 is amended by deleting the word "and" between "clause (f)" and "clause (g)" and inserting a comma in lieu ---------- ---------- thereof, and inserting the words "and clause (h)" after "clause (g)". ---------- ---------- (f) Section 9.2 is hereby amended as follows: (i) the first sentence is amended by deleting "GE Capital and FNBB are" and inserting in lieu thereof "GE Capital is", and by deleting ", respectively" and (ii) the third sentence is deleted in its entirety. (g) Section 9.4 is hereby deleted in its entirety and the following is inserted in lieu thereof: "GE Capital and its Affiliates. With respect to its Commitments ----------------------------- hereunder, GE Capital shall have the same rights and powers under this Agreement and the other Loan Documents as any other Lender and may exercise the same as though it were not Agent hereunder; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include GE Capital in its individual capacity. GE Capital and its Affiliates may lend money to, invest in, and generally engage in any kind of business with, any Credit Party, any of its Affiliates and any Person who may do business with or own securities of any Credit Party or any such Affiliate, all as if GE Capital was not Agent and without any duty to account therefor to Lenders. GE Capital and its Affiliates may accept fees and other consideration from any Credit Party for services in connection with this Agreement or otherwise without having to account for the same to Lenders. Each Lender acknowledges the potential conflict of interest between GE Capital as a Lender and GE Capital as Agent." (h) Section 11.14 is hereby amended by deleting it in its entirety and inserting in lieu thereof the following: "11.14 Press Releases Each Credit Party executing this -------------- Agreement agrees that neither it nor its Affiliates will in the future issue any press releases or other public disclosure using the name of GE Capital or its Affiliates or referring to this Agreement, the other Loan Documents or the transactions contemplated hereby or thereby without at least two (2) Business Days' prior notice to GE Capital and without the prior written consent of GE Capital unless (and only to the extent that) such Credit Party or Affiliate is required to do so under law and then, in any event, such Credit Party or Affiliate will consult with GE Capital before issuing such press release or other public disclosure. Each Credit Party consents to the publication by Agents or any Lender of a tombstone or similar advertising material relating to the financing transactions contemplated by this Agreement." 3 (i) The definition of "Collateral Agent" in Annex A is hereby amended by deleting it in its entirety and inserting the following in lieu thereof: "Collateral Agent shall mean GE Capital or its successor ---------------- appointed puruant to Section 9." (j) Clause (a) of the definition of "Commitment Termination Date" in Annex A is hereby amended by changing the date to "April 15, 2004". (k) The first clause (iii) and clause (iv) of the definition of "Fixed Asset Availability" in Annex A are hereby amended by deleting them in their entirety and inserting in lieu thereof the following: "and (iii) on March 1, 1999 and thereafter, up to 33 1/3% of Maximum Fixed Asset Availability." (l) Paragraph (a) of Annex B is hereby amended by changing the definition of "L/C Sublimit" to "Twenty-Five Million Dollars ($25,000,000)". (m) Paragraph (d) of Annex B is hereby amended by deleting subsection (y) in its entirety and inserting the following in lieu thereof: "(y) for each month during which any Letter of Credit Obligation shall remain outstanding, a fee (the "Letter of Credit Fee") in an amount -------------------- equal to the Applicable L/C Margin set forth in Section 1.5(a) multiplied by the maximum amount available from time to time to be drawn under the applicable Letter of Credit." (n) Paragraph (e) of Annex B is hereby amended by inserting the following at the end of the first sentence: "; provided, however, that Borrower Representative need not obtain -------- ------- approval and need not provide notice to Administrative Agent for the incurrence of a Letter of Credit Obligation if (i) the issuance of such Letter of Credit Obligation would not violate any provision of this Annex B, (ii) the amount of such Letter of Credit Obligation is ------- less than $300,000 and (iii) the aggregate amount of all Letter of Credit Obligations issued in such week is less than $300,000. For administrative purposes, by Monday of the following week, the L/C Issuer shall distribute a summary sheet to Administrative Agent stating the amount requested during such week and the date of all Letter of Credit Obligations issued during such week." (o) Paragraph 1(b) of Annex F is hereby amended by deleting the existing language in its entirety and inserting the following in lieu thereof: 4 "(b) To the Agents, no later than ten (10) Business Days after the end of each Fiscal Month, a Borrowing Base Certificate with respect to each Borrower as of the close of business on the last day of the immediately preceding Fiscal Month, accompanied by such supporting detail and documentation as shall be requested by Agents in their reasonable discretion; provided, however, that if Net Borrowing -------- ------- Availability shall equal an amount less than $25,000,000 for fourteen (14) consecutive days or more, Borrowers shall deliver or cause to be delivered, no later than Tuesday of each week or less frequently as may otherwise be requested by Agents, a Borrowing Base Certificate with respect to each Borrower as of the close of business on the immediately preceding Saturday, in each case accompanied by such supporting detail and documentation as shall be requested by Agents in their reasonable discretion, until the earlier of such time as (i) Net Borrowing Availability shall equal an amount greater than $25,000,000 for at least twenty-eight (28) consecutive days or (ii) Agents shall determine otherwise, at which time Borrowers shall deliver a Borrowing Base Certificate solely on a monthly basis as provided in the first clause of this sentence;" (p) Paragraph 2 of Annex F is hereby amended by deleting the existing language in its entirety and inserting the following in lieu thereof: "2. During any Fiscal Year Borrowers shall pay for all costs and expenses of up to two commercial finance field audits conducted by Agents and at least one limited-scope Inventory appraisal and, if at any time Net Borrowing Availability is less than $35,000,000 for more than ten (10) consecutive days in a Fiscal Month, for the remainder of such Fiscal Year Borrowers shall pay for all costs and expenses of up to one full-scope Inventory appraisal for such Fiscal Year, conducted by an appraiser selected by Agents, each of the foregoing in form and substance satisfactory to Agents." SECTION 2. Conditions to Effectiveness. This Amendment shall become --------------------------- effective as of the date hereof when the Agents shall have received (a) counterparts of this Amendment executed by each Borrower, Credit Party, Agent and each Lender or, as to the Lenders, advice satisfactory to the Agents that each Lender has executed this Amendment, (b) an amendment fee equal to 0.15% of the Commitments (i.e., $300,000), to be paid to the Lenders based on their Pro Rata Shares and (c) receipt by the Agents of the amendments to the GE Capital Fee Letter and the FNBB Fee Letter, in form and substance acceptable to GE Capital, and of all fees payable on the effective date hereof as set forth in the amendment to the GE Capital Fee Letter. SECTION 3. Representations and Warranties. The Borrowers and other ------------------------------ Credit Parties hereby jointly and severally represent and warrant to the Lenders and the Agents as follows: 5 (a) After giving effect to this Amendment, each of the representations and warranties in Section 3 of the Credit Agreement and in the other Loan Documents are true and correct in all material respects on and as of the date hereof as though made on and as of such date, except to the extent that any such representation or warranty expressly relates to an earlier date and except for changes therein not prohibited by the Credit Agreement. (b) After giving effect to this Amendment, no Default or Event of Default has occurred and is continuing as of the date hereof. (c) The execution, delivery and performance by the Credit Parties of this Amendment have been duly authorized by all necessary or proper corporate action and do not require the consent or approval of any Person which has not been obtained. (d) This Amendment has been duly executed and delivered by each Credit Party and each of this Amendment and the Credit Agreement as amended hereby constitutes the legal, valid and binding obligation of the Credit Parties, enforceable against them in accordance with its terms. SECTION 4. Reference to and Effect on the Loan Documents. (a) Upon --------------------------------------------- the effectiveness of this Amendment, on and after the date hereof, each reference in the Credit Agreement and the other Loan Documents to "this Agreement," "hereunder," "hereof," "herein," or words of like import, shall mean and be a reference to the Credit Agreement as amended hereby. (b) Except to the extent amended hereby, the provisions of the Credit Agreement and all of the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Lenders or the Agents under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. SECTION 5. Costs and Expenses. The Borrowers agree to pay on demand ------------------ all costs, fees and expenses of the Agents in connection with the preparation, execution and delivery of this Amendment and the other instruments and documents to be delivered pursuant hereto, including the reasonable fees and out-of-pocket expenses of counsel for the Agents with respect thereto. SECTION 6. Execution in Counterparts. This Amendment may be executed ------------------------- in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same instrument. 6 SECTION 7. Governing Law. This Amendment shall be governed by and ------------- construed and enforced in accordance with the laws of the State of New York applicable to contracts made and performed in such state, without regard to the principles thereof regarding conflict of laws. 7 IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the date first above written. BORROWERS: --------- THE BON-TON DEPARTMENT STORES, INC. By: /s/ H. Todd Dissinger --------------------------------- Name H. Todd Dissinger Title: Treasurer THE BON-TON STORES OF LANCASTER, INC. By: /s/ James H. Baireuther --------------------------------- Name: James H. Baireuther Title: Sr. Vice President OTHER CREDIT PARTIES: -------------------- THE BON-TON STORES, INC. By: /s/ H. Todd Dissinger --------------------------------- Name: H. Todd Dissinger Title Treasurer THE BON-TON CORP. By: /s/ James H. Baireuther --------------------------------- Name: James H. Baireuther Title: Treasurer THE BON-TON NATIONAL CORP. By: /s/ James H. Baireuther --------------------------------- Name: James H. Baireuther Title: Treasurer 8 THE BON-TON TRADE CORP. By: /s/ James H. Baireuther --------------------------------- Name: James H. Baireuther Title: Treasurer AGENTS AND LENDERS: ------------------ GENERAL ELECTRIC CAPITAL CORPORATION Revolving Loan Commitment (including a Swing Line Commitment of $20,000,000): $48,000,000 By: /s/ Charles D. Chiodo --------------------------------- Name: Charles D. Chiodo Title: Duly Authorized Signatory BANKBOSTON, N.A. Revolving Loan Commitment $25,000,000 By: /s/ Kali A. Ramachandran --------------------------------- Name: Kali A. Ramachandran, CPA Title: Vice President THE CIT GROUP/BUSINESS CREDIT, INC. Revolving Loan Commitment $25,000,000 By: /s/ Kevin O'Hara --------------------------------- Name: Kevin O'Hara Title: AVP FIRST UNION NATIONAL BANK, as successor to CORESTATES BANK, N.A. Revolving Loan Commitment $25,000,000 By: /s/ Richard J. Preskenis --------------------------------- Name: Richard J. Preskenis Title: Vice President 9 MANUFACTURERS AND TRADERS TRUST COMPANY Revolving Loan Commitment $20,000,000 By: /s/ Christopher Kania --------------------------------- Name: Christopher Kania Title: Vice President FOOTHILL CAPITAL CORPORATION Revolving Loan Commitment $30,000,000 By: /s/ Todd W. Colpitts --------------------------------- Name: Todd W. Colpitts Title: V.P. FLEET BUSINESS CREDIT CORPORATION Revolving Loan Commitment $11,000,000 By: /s/ Victor Alarcon -------------------------------- Name: Title: Vice President UNION BANK OF CALIFORNIA, N.A. Revolving Loan Commitment $16,000,000 By: /s/ Albert R. Joseph -------------------------------- Name: Albert R. Joseph Title: Vice President 10 EX-13.1 3 PAGE 20 OF THE COMPANY'S ANNUAL REPORT EXHIBIT 13.1 THE BON-TON STORES, INC. AND SUBSIDIARIES SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA (In thousands except share, per share and store data)
- ---------------------------------------------------------------------------------------------------------------------------------- Fiscal Year 1998 1997 1996 Ended Jan. 30, 1999 Jan. 31, 1998 Feb. 1, 1997 - ---------------------------------------------------------------------------------------------------------------------------------- STATEMENT OF OPERATIONS DATA: % % Net sales (1) $ 674,871 100.0 $ 656,399 100.0 $ 626,482 Other income, net 2,350 0.3 2,349 0.4 2,430 Gross profit (2) 248,141 36.8 242,553 37.0 230,919 Selling, general and administrative expenses 209,407 31.0 202,850 30.9 197,315 Depreciation and amortization 13,281 2.0 12,882 2.0 12,758 Unusual (income) expense (3) - - - - (3,171) Restructuring charges (4) - - - - - Income (loss) from operations 27,803 4.1 29,170 4.4 26,447 Interest expense, net 9,396 1.4 13,202 2.0 14,687 Income (loss) before taxes 18,407 2.7 15,968 2.4 11,760 Income tax provision (benefit) 7,196 1.1 6,270 1.0 4,949 Income (loss) before extraordinary item 11,211 1.7 9,698 1.5 6,811 Extraordinary item, net of tax (5) - - (446) (0.1) - Net income (loss) $ 11,211 1.7 $ 9,252 1.4 $ 6,811 Per Share Amounts -- Basic: Net income (loss) before extraordinary item $ 0.81 $ 0.87 $ 0.62 Effect of extraordinary item - (0.04) - Net income (loss) $ 0.81 $ 0.83 $ 0.62 Basic Shares Outstanding 13,866,000 11,122,000 11,064,000 Diluted: Net income (loss) before extraordinary item $ 0.81 $ 0.85 $ 0.61 Effect of extraordinary item - (0.04) - Net income (loss) $ 0.81 $ 0.81 $ 0.61 Diluted Shares Outstanding 13,917,000 11,377,000 11,106,000 BALANCE SHEET DATA (AT END OF PERIOD): - -------------------------------------------------------------------------------------------------------------------------------- Working capital $ 128,977 $ 123,078 $ 102,853 Total assets 378,119 352,686 341,252 Long-term debt, including capital leases 76,255 123,384 128,098 Shareholders' equity 180,211 124,394 111,485 SELECTED OPERATING DATA: - -------------------------------------------------------------------------------------------------------------------------------- EBITDA (6) $ 41,084 6.1 $ 42,052 6.4 $ 39,205 Total Sales Growth (7) 2.8% 4.8% 4.1% Comparable stores growth (7) (8) 1.4% 6.5% 4.2% Comparable stores data: (8) Sales per selling square foot $ 143 $ 143 $ 138 Selling square footage 4,620,000 4,511,000 4,153,000 Capital expenditures $ 19,418 $ 10,978 $ 9,730 Number of stores: Beginning of year 64 64 68 Additions 2 - 1 Closings (1) - (5) End of year 65 64 64 - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- Fiscal Year 1995 1994 Ended Feb. 3, 1996 Jan. 28, 1995 - -------------------------------------------------------------------------------------------------------------------------------- STATEMENT OF OPERATIONS DATA: % % % Net sales (1) 100.0 $ 607,357 100.0 $ 494,908 100.0 Other income, net 0.4 2,266 0.4 2,581 0.5 Gross profit (2) 36.9 219,410 36.1 194,994 39.4 Selling, general and administrative expenses 31.5 207,058 34.1 162,442 32.8 Depreciation and amortization 2.1 11,895 2.0 8,465 1.7 Unusual (income) expense (3) (0.5) 3,280 0.5 - - Restructuring charges (4) - 5,690 0.9 - - Income (loss) from operations 4.2 (6,247) (1.0) 26,668 5.4 Interest expense, net 2.3 8,722 1.4 5,475 1.1 Income (loss) before taxes 1.9 (14,969) (2.4) 21,193 4.3 Income tax provision (benefit) 0.8 (5,766) (0.9) 7,563 1.5 Income (loss) before extraordinary item 1.1 (9,203) (1.5) 13,630 2.8 Extraordinary item, net of tax (5) - - - - - Net income (loss) 1.1 $ (9,203) (1.5) $ 13,630 2.8 Per Share Amounts -- Basic: Net income (loss) before extraordinary item $ (0.83) $ 1.24 Effect of extraordinary item - - Net income (loss) $ (0.83) $ 1.24 Basic Shares Outstanding 11,044,000 10,955,000 Diluted: Net income (loss) before extraordinary item $ (0.83) $ 1.23 Effect of extraordinary item - - Net income (loss) $ (0.83) $ 1.23 Diluted Shares Outstanding 11,044,000 11,041,000 BALANCE SHEET DATA (AT END OF PERIOD): - -------------------------------------------------------------------------------------------------------------------------------- Working capital $ 90,758 $ 62,539 Total assets 331,173 270,228 Long-term debt, including capital leases 127,893 60,521 Shareholders' equity 104,174 112,447 SELECTED OPERATING DATA: - -------------------------------------------------------------------------------------------------------------------------------- EBITDA (6) 6.3 $ 5,648 0.9 $ 35,133 7.1 Total Sales Growth (7) 22.7% 47.0% Comparable stores growth (7) (8) 0.2% 6.1% Comparable stores data: (8) Sales per selling square foot $ 160 $ 163 Selling square footage 2,278,000 2,185,000 Capital expenditures $ 43,587 $ 18,532 Number of stores: Beginning of year 69 35 Additions 4 35 Closings (5) (1) End of year 68 69 - 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(1) Fiscal 1995 reflects the 53 weeks ended February 3, 1996. (2) Fiscal 1995 includes a $3.5 million charge related to inventory liquidation associated with the elimination of certain vendors and other merchandise changes. (3) Reflects the gain recognized on the pension termination and expenses related to hiring the Chief Executive Officer in fiscal years 1996 and 1995, respectively. (4) Includes $5.0 million charge for store closing reserve with the balance related to a work force reduction. (5) Expense resulting from the early extinguishment of the Company's term loan and revolving credit facility. (6) Income (loss) from operations plus depreciation and amortization. (7) Fiscal 1996 sales compared to the 52 weeks ended January 27, 1996. (8) Comparable stores data (sales and selling square footage) reflects stores open for the entire current and prior fiscal years. 20 EX-13.2 4 PAGES 21 THROUGH 26 OF THE COMPANY'S ANNUAL REPORT EXHIBIT 13.2 THE BON-TON STORES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS --------------------- The following table summarizes the changes in selected operating indicators of The Bon-Ton Stores, Inc. (the "Company"), illustrating the relationship of various income and expense items to net sales for each fiscal year presented:
PERCENT OF NET SALES -------------------------------------- FISCAL YEAR -------------------------------------- 1998 1997 1996 --------------------------------------------------------------------------------------- Net sales 100.0% 100.0% 100.0% Other income, net 0.3 0.4 0.4 -------------------------------------- 100.3 100.4 100.4 -------------------------------------- Costs and expenses: Costs of merchandise sold 63.2 63.0 63.1 Selling, general and administrative 31.0 30.9 31.5 Depreciation and amortization 2.0 2.0 2.1 Unusual income --- --- (0.5) -------------------------------------- Income from operations 4.1 4.4 4.2 Interest expense, net 1.4 2.0 2.3 -------------------------------------- Income before income taxes 2.7 2.4 1.9 Income tax provision 1.1 1.0 0.8 -------------------------------------- Income before extraordinary item 1.7 1.5 1.1 Extraordinary loss, net of tax --- 0.1 --- -------------------------------------- Net income 1.7% 1.4% 1.1% ======================================
FISCAL 1998 COMPARED TO FISCAL 1997 ----------------------------------- NET SALES: Net sales were $674.9 million for the fifty-two weeks ended January 30, 1999, an increase of $18.5 million, or 2.8%, over the fifty-two week period ended January 31, 1998. A majority of this increase was attributable to the addition of stores in Jamestown, New York and Westfield, Massachusetts. Comparable store sales for the same period increased 1.4%. Strong sales performances were achieved in men's sportswear/young men's, home, intimate, children and shoes. The sales increase in these categories was reflective of the Company's initiative to expand its merchandise offerings by introducing additional better branded goods to its current assortment. OTHER INCOME, NET: Net other income, which is comprised mainly of income from leased departments, decreased to 0.3% of net sales for fiscal 1998 compared to 0.4% in fiscal 1997, as a result of the increased net sales in fiscal 1998. COSTS AND EXPENSES: Gross margin dollars for fiscal 1998 increased $5.6 million, or 2.3%, over fiscal 1997 as a result of the sales volume increase. Gross profit as a percentage of net sales decreased slightly from 37.0% in fiscal 1997 to 36.8% for fiscal 1998. The decrease in the margin rate was primarily attributable to a reduction in the cumulative markup percentage, an increase in the ratio of markdowns to sales and the lower margin typically associated with better branded goods which accounted for a greater percentage of total inventory. Selling, general and administrative expenses for fiscal 1998 were $209.4 million, or 31.0% of net sales, as compared to $202.9 million, or 30.9% of net sales, in the prior year. The percentage increase in fiscal 1998 was primarily attributable to the cost of improving customer service, including personnel costs, expenses associated with the opening of two new stores and deterioration of credit operations as a result of increased levels of personal bankruptcies, which were partially offset by the gain recognized on the sale of the Downtown Lancaster property (see Note 5) and increased sales volume in fiscal 1998. Depreciation and amortization remained constant at 2.0% of net sales in fiscal 1998 and fiscal 1997. 21 INCOME FROM OPERATIONS: Income from operations in fiscal 1998 amounted to $27.8 million, or 4.1% of net sales, as compared to $29.2 million, or 4.4% of net sales, in fiscal 1997. INTEREST EXPENSE, NET: Net interest expense decreased $3.8 million to $9.4 million, or 1.4% of net sales, in fiscal 1998 from $13.2 million, or 2.0% of net sales, in the prior fiscal year. The decrease was primarily attributable to lower average borrowing levels, which were reduced with the proceeds received from the sale of additional shares (see Note 7), lower borrowing rates due to a change in the debt mix and a reduction in the cost of funds borrowed under the Credit Facility (see Note 2). EXTRAORDINARY ITEM: The Company recorded an expense of $446,000, net of tax, related to the early extinguishment of the Company's term loan and revolving credit facility in fiscal 1997 (see Note 2). NET INCOME: Net income in fiscal 1998 amounted to $11.2 million, or 1.7% of net sales, compared to $9.3 million, or 1.4% of net sales, in fiscal 1997. The decrease in the effective tax rate to 39.1% in fiscal 1998 from 39.3% in fiscal 1997 primarily reflects a reduction in expenses in excess of the limitations established in Section 162 of the Internal Revenue Code of 1986, partially offset by taxes paid in the closure of the Internal Revenue Service audit for the fiscal years of 1992 through 1995. FISCAL 1997 COMPARED TO FISCAL 1996 ----------------------------------- NET SALES: Net sales were $656.4 million for the fifty-two weeks ended January 31, 1998, an increase of $29.9 million, or 4.8%, over the fifty-two week period ended February 1, 1997. Comparable store sales for the same period increased 6.5%. Strong sales performances were achieved in fiscal 1997 in better ladies' sportswear, men's collections, men's designer denim, Club X (junior department), children's better collections and men's and ladies' special sizes. The sales increase in these categories reflects the results of the Company's merchandise realignment from a predominately moderate mix to an improved balance of moderate and better merchandise and a larger selection of sizes, colors and styles. OTHER INCOME, NET: Net other income, which is comprised mainly of income from leased departments, remained constant at 0.4% of net sales for fiscal 1997. COSTS AND EXPENSES: Gross margin dollars for fiscal 1997 increased $11.6 million over fiscal 1996 as a result of the sales volume increase and an improvement in the gross margin rate. Gross profit as a percentage of net sales increased slightly from 36.9% in fiscal 1996 to 37.0% for fiscal 1997. The increase in the margin rate was primarily attributable to the continued improvement in the Company's shrinkage rate as a result of concerted inventory loss prevention efforts and a decrease in the markdown rate, partially offset by a strategic reduction in the cumulative markup percentage and reduced margins on the better merchandise mix. Selling, general and administrative expenses for fiscal 1997 were $202.9 million, or 30.9% of net sales, as compared to $197.3 million, or 31.5% of net sales, in the prior year. The percentage decrease in fiscal 1997 was primarily attributable to the increased sales volume, a $4.0 million improvement in the profitability of the Company's credit operations and reduced advertising costs, which were partially offset by the expense of sales growth programs, including additional personnel expense, and general inflation costs. Depreciation and amortization decreased slightly to 2.0% of net sales in fiscal 1997 from 2.1% of net sales in fiscal 1996. The decrease primarily reflects the increased sales volume in fiscal 1997. Fiscal 1996 results were affected by the recognition of $3.2 million in pre- tax unusual income as the result of terminating the pension plan associated with one of the Company's 1994 acquisitions. INCOME FROM OPERATIONS: Income from operations in fiscal 1997 amounted to $29.2 million, or 4.4% of net sales, as compared to $26.4 million, or 4.2% of net sales, in fiscal 1996. The improvement was primarily attributable to the increase in current year sales and gross margin combined with selling, general and administrative expenses increasing at a rate less than sales. 22 INTEREST EXPENSE, NET: Net interest expense decreased $1.5 million to $13.2 million, or 2.0% of net sales, in fiscal 1997 from $14.7 million, or 2.3% of net sales, in the prior fiscal period. The decrease was primarily attributable to lower average borrowing levels, partially offset by slightly higher borrowing costs. EXTRAORDINARY ITEM: The Company recorded an expense of $446,000, net of tax, related to the early extinguishment of the Company's term loan and revolving credit facility in fiscal 1997. NET INCOME: Net income in fiscal 1997 amounted to $9.3 million, or 1.4% of net sales, as compared to $6.8 million, or 1.1% of net sales, in fiscal 1996. The decrease in the effective tax rate to 39.3% in fiscal 1997 from 42.1% in fiscal 1996 was primarily a result of the nondeductibility of the Federal excise tax of $1.1 million relating to the pension plan termination in fiscal 1996. CHANGES IN ACCOUNTING POLICIES In the fourth quarter of fiscal 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). The statement establishes standards for computing and presenting earnings per share ("EPS") and applies to entities with publicly held common stock. SFAS No. 128 simplifies the standards for computing EPS previously found in Accounting Principles Board Opinion No. 15, "Earnings Per Share," and makes them comparable to international EPS standards. It replaces the presentation of primary and fully diluted EPS with a presentation of basic and diluted EPS, respectively. SFAS No. 128 also requires the dual presentation of basic and diluted EPS on the face of the income statement and requires a reconciliation of the numerator and the denominator of the basic EPS computation to the numerator and the denominator of the diluted EPS calculation. In accordance with this statement, the Company has restated all EPS calculations presented in these financial statements and the notes thereto to reflect the requirements of SFAS No. 128. FUTURE ACCOUNTING CHANGES In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and for Hedging Activities" ("SFAS No. 133"). This statement requires every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 also requires changes in the derivative's fair value be recognized currently in earnings unless specific hedge criteria are met. SFAS No. 133 also requires the Company to formally document, designate and assess the effectiveness of transactions that receive hedge accounting. By requiring greater use of fair-value accounting, SFAS No. 133 has the potential to increase volatility in earnings and other comprehensive income. The Company will adopt SFAS No. 133 in fiscal 2000 and its effect is not anticipated to impact the operating results of the Company, as only cash flow hedges are utilized by the Company and their change will be reported through comprehensive income. YEAR 2000 READINESS DISCLOSURE The Year 2000 issue refers to the inability of some computer programs and microprocessors to correctly interpret the century from a date in which the year is represented by only two digits (e.g., 98). As a result, on January 1, 2000, computer systems throughout the world may experience operating difficulties unless they are modified or upgraded to properly process date-related information. The Year 2000 issue can arise at any point in a company's supply, operational, distribution or financial processes. Breakdowns or malfunctions in any number of the Company's computer systems or applications could prevent the Company from being able to receive and sell its merchandise. Examples are failures in the Company's receiving, inventory, payment or point-of-sale applications software, computer chips embedded in equipment, lack of supply of products from its vendors or lack of power, heat or water from utilities servicing its facilities. STATE OF READINESS: The Company implemented a comprehensive risk-based plan designed to make its operations Year 2000 compliant. The Company established a corporate project team, which reports to the Vice Chairman and Chief Operating Officer, to oversee, monitor and coordinate the Company-wide Year 2000 effort. The Company's plan focuses on four areas - applications and mainframe software, service providers, miscellaneous equipment providers and merchandise vendors - and generally covers three stages, including (i) assessment, (ii) remediation and (iii) testing and certification. The remediation and testing and certification stages do not apply to the merchandise vendor area. The Company is primarily utilizing internal resources to complete its Year 2000 initiatives. 23 The applications and mainframe software area includes the Company's proprietary and third party computer systems and related hardware, software and data and telephone networks. The Company's merchandise system, which supports procurement and distribution, inventory control and point-of-sale reporting systems, is primarily proprietary. With respect to the Company's credit business, the Company utilizes a third party software support vendor and has obtained assurances from such vendor that it expects its system to be Year 2000 compliant. A majority of the Company's information systems are presently Year 2000 compliant. Remediation and testing of remaining systems is in process, with substantial completion anticipated by July 1999. The service provider area includes systems and processes provided by outside agencies, such as freight carriers, inventory and direct mail service providers. Based on assurances from third parties, these systems present little Year 2000 risk. The miscellaneous equipment area includes equipment and systems that contain embedded computer technology such as elevators, phone systems and security systems. The majority of these systems are presently Year 2000 compliant and the remaining systems present little Year 2000 exposure or risk. Merchandise vendors are currently being monitored by an outside agency, co- sponsored by a group of retailers, which is surveying the vendors for Year 2000 readiness. The survey results are monitored by the retailers via an internet webpage. The Company is reviewing its vendors' responses on the webpage and expects to conduct follow-up assessments of certain of its critical vendors to further monitor such vendors' progress. COSTS: The aggregate costs for the Company to achieve Year 2000 readiness are not expected to exceed $1.3 million. These costs will be incurred over the two year period from 1998 through the year 1999, with the majority to be expended in 1999. All costs associated with Year 2000 readiness will be expensed as incurred and funded from operating cash flows. The Company's costs associated with Year 2000 readiness through January 30, 1999 are approximately $235,000. RISKS AND CONTINGENCY PLANS: Despite the Company's significant efforts to make its systems and facilities Year 2000 compliant, the ability of third party service providers, merchandise vendors and other third parties, including governmental entities and utility companies, to be Year 2000 compliant, is beyond the Company's control. Accordingly, the Company can give no assurances that the systems of others on which the Company's systems rely will be timely converted or compatible with the Company's systems. Additionally, there can be no assurance that the Company's systems will be rendered Year 2000 compliant in a timely manner. Failure of a third party or the Company to comply on a timely basis could have a material adverse effect on the Company. At present, the Company does not expect Year 2000 issues to materially affect its supply of merchandise, services, competitive position or financial performance. The Company believes it is very difficult to accurately predict the most reasonably likely worst case Year 2000 scenario. However, a reasonably likely worst case Year 2000 scenario would include the failure of a third party (including, without limitation, merchandise vendors and service and utility providers) to timely complete remediation of its Year 2000 deficiencies for any substantial period of time. This could have a material adverse effect upon the Company's ability to provide and sell merchandise to its customers. Additionally, a failure by the Company to timely remediate its Year 2000 deficiencies could impair the Company's ability to conduct its business of providing and selling merchandise in a timely or profitable manner. The Company is developing contingency plans, such as identifying alternative sourcing, increasing inventory on basic stock items and identifying what actions need to be taken if a critical system or third party provider is not Year 2000 compliant. The Company expects these plans to be finalized by May 1999. The foregoing statements as to costs and dates relating to the Year 2000 effort are forward-looking and are made in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. They are based on the Company's best estimates which may be updated as additional information becomes available. The Company's forward-looking statements are also based on assumptions about many important factors, including the technical skills of employees and independent contractors, the representations and preparedness of third parties, the failure of vendors to deliver merchandise or perform services required by the Company and the collateral effects of the Year 2000 issues on the Company's business partners and customers. While the Company believes its assumptions are reasonable, it cautions that it is impossible to predict the impact of certain factors that could cause actual costs or timetables to differ materially from the expected results. 24 MARKET RISK AND FINANCIAL INSTRUMENTS The Company is exposed to market risk associated with changes in interest rates. To provide the Company with some protection against potential increases in the variable rate associated with its long-term debt, the Company has entered into various derivative financial transactions in the form of interest rate swaps. The interest rate swaps are used to hedge underlying debt obligations. The swaps are qualifying hedges and the interest rate differential is reflected as an adjustment to interest expense over the life of the swaps. The Company currently holds "variable to fixed" rate swaps with a notional amount of $80.0 million with several different financial institutions for various terms. The notional amount does not represent amounts exchanged by the parties, rather it is used as the basis to calculate the amounts due and to be received under the rate swaps. The Company believes the derivative financial instruments entered into provide protection to the Company from volatile upward swings in the variable interest rates associated with its debt. The Company does not enter into or hold derivative financial instruments for trading purposes. The following tabular disclosure provides information about the Company's derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, including debt obligations and interest rate swaps. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates, based upon the amended debt financing (see Note 16), as of January 30, 1999. For interest rate swaps, the table presents notional amounts and weighted average pay and receive interest rates by expected maturity date.
Expected Maturity Date ---------------------------------------------------------- There- Fair 1999 2000 2001 2002 2003 after Total Value -------- -------- -------- -------- -------- -------- -------- -------- Liabilities: Long-term debt Fixed rate debt $ 615 $ 670 $ 6,542 $ 642 $ 709 $ 18,554 $ 27,732 $ 30,882 Average fixed rate 9.93% 9.92% 10.88% 9.62% 9.62% 9.62% 9.93% Variable rate debt --- --- --- --- --- $ 47,270 $ 47,270 $ 45,597 Average variable rate --- --- --- --- --- 7.12% 7.12% Interest Rate Derivatives Interest Rate Swaps Variable to Fixed --- $ 30,000 --- --- $ 50,000 --- $ 80,000 $ (2,308) Average pay rate --- 6.02% --- --- 5.81% --- 5.89% Average variable rate --- 5.55% --- --- 5.45% --- 5.49%
SEASONALITY AND INFLATION The Company's business, like that of most retailers, is subject to seasonal fluctuations, with the major portion of sales and income realized during the last half of each fiscal year, which includes the back-to-school and holiday seasons. See Note 11 of Notes to Consolidated Financial Statements for the Company's quarterly results for fiscal 1998 and 1997. Selling, general and administrative expenses are typically higher as a percentage of net sales during the first half of each fiscal year. Because of the seasonality of the Company's business, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year. In addition, quarterly results of operations depend upon the timing and amount of revenues and costs associated with the opening, closing and remodeling of existing stores. The Company does not believe inflation had a material effect on operating results during the past three years. However, there can be no assurance that the Company's business will not be affected by inflationary adjustments in the future. 25 LIQUIDITY AND CAPITAL RESOURCES ------------------------------- The following table summarizes material measures of the Company's liquidity and capital resources:
January 30, January 31, February 1, (Dollars in millions) 1999 1998 1997 - ---------------------------------------------------------------------------------------- Working capital $ 129.0 $ 123.1 $ 102.9 Current ratio 2.10:1 2.22:1 2.03:1 Funded debt to total capitalization 0.29:1 0.49:1 0.55:1 Unused availability under lines of credit $ 69.7 $ 17.5 $ 22.0
The Company's primary sources of working capital are typically cash flow from operations, borrowings under its revolving credit facility and proceeds from its accounts receivable facility. The Company had working capital of $129.0 million, $123.1 million and $102.9 million at the end of fiscal 1998, 1997 and 1996, respectively. The increase in working capital in fiscal 1998 was principally attributable to an increase in merchandise inventories required to support the increased sales volume at existing and new locations. The increase in working capital was partially offset by increased payable levels consistent with increased inventory and an increase in income taxes payable reflecting increased income in fiscal 1998. The Company's business follows a seasonal pattern and working capital fluctuates with seasonal variations. Historically, the Company's working capital is at its lowest levels from February through August and then increases very sharply through November when it reaches its highest level. Net cash provided by operating activities amounted to $25.8 million in fiscal 1998, while net cash used in operating activities amounted to $7.7 million and $1.2 million in fiscal 1997 and 1996, respectively. Net operating cash inflows in fiscal 1998 primarily resulted from improved net income and increased depreciation. Net cash used in investing activities amounted to $21.4 million and $8.9 million in fiscal 1998 and 1996, respectively, while net cash provided by investing activities amounted to $21.9 million in fiscal 1997. The net cash outflow in fiscal 1998 is the result of capital expenditures in the amount of $19.4 million which were primarily related to the construction of new stores in Jamestown, New York and Westfield, Massachusetts, expansion and remodeling of existing stores and expenditures for fixtures and displays. The Company also received net proceeds in the amount of $3.0 million primarily from the sale of the Company's vacant facilities in Downtown Lancaster, Pennsylvania and Downtown Allentown, Pennsylvania. Net cash used in financing activities amounted to $2.9 million and $11.6 million in fiscal 1998 and 1997, respectively, while net cash provided by financing activities was $9.7 million in fiscal 1996. The net cash outflow in fiscal 1998 was primarily attributable to the net repayment on the Company's long-term debt, offset by proceeds from the Company's sale of additional stock (see Note 7). The Company currently anticipates its capital expenditures for fiscal 1999 will approximate $46.5 million. The expenditures will be directed toward expansion and remodeling in the Company's existing stores, completion of five to seven new stores including one in Glen Falls, New York, one in Pottstown, Pennsylvania and three newly acquired locations (see Note 16) along with information system enhancements. In addition to the capital expenditures planned for fiscal 1999, the Company is planning an increased investment in inventory, advertising and staffing in certain areas of the New York market. The investment was determined as part of the continuous process of monitoring store performance. The Company intends to improve its performance in the New York markets to be more in line with the Company's strategic goals. Aside from planned capital expenditures, the Company's primary cash requirements will be to service debt and finance working capital increases during peak selling seasons. The Company anticipates that its cash balances and cash flows from operations, supplemented by borrowings under the Credit Facility, as amended (see Note 16), and proceeds from the accounts receivable facility, will be sufficient to satisfy its operating cash requirements. 26 EX-13.3 5 PAGES 27 THROUGH 44 OF THE COMPANY'S ANNUAL REPORT EXHIBIT 13.3 THE BON-TON STORES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JANUARY 30, JANUARY 31, (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) 1999 1998 - ---------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 10,607 $ 9,109 Trade and other accounts receivable, net of allowance for doubtful accounts of $3,692 and $1,977 in 1998 and 1997, respectively 34,677 28,485 Merchandise inventories 192,872 177,783 Prepaid expenses and other current assets 8,292 8,835 - ---------------------------------------------------------------------------------------------------------------- Total current assets 246,448 224,212 - ---------------------------------------------------------------------------------------------------------------- PROPERTY, FIXTURES AND EQUIPMENT at cost, less accumulated depreciation and amortization 112,521 108,568 OTHER ASSETS 19,150 19,906 - ---------------------------------------------------------------------------------------------------------------- Total assets $378,119 $352,686 ================================================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 71,448 $ 55,478 Accrued payroll and benefits 9,639 9,457 Accrued expenses 25,594 25,649 Current portion of long-term debt 615 556 Current portion of obligations under capital leases 409 379 Deferred income taxes 26 1,227 Income taxes payable 9,740 8,388 - ---------------------------------------------------------------------------------------------------------------- Total current liabilities 117,471 101,134 - ---------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT, less current maturities 74,387 121,121 OBLIGATIONS UNDER CAPITAL LEASES, less current maturities 1,868 2,263 DEFERRED INCOME TAXES 823 365 OTHER LONG-TERM LIABILITIES 3,359 3,409 - ---------------------------------------------------------------------------------------------------------------- Total liabilities 197,908 228,292 - ---------------------------------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES (Note 6) SHAREHOLDERS' EQUITY: Common Stock -- authorized 40,000,000 shares at $0.01 par value; issued and outstanding shares of 12,278,120 and 8,847,333 in 1998 and 1997, respectively 123 88 Class A Common Stock -- authorized 20,000,000 shares at $0.01 par value; issued and outstanding shares of 2,989,853 in 1998 and 1997 30 30 Additional paid-in capital 108,260 62,585 Deferred compensation (3,114) (2,010) Retained earnings 74,912 63,701 - ---------------------------------------------------------------------------------------------------------------- Total shareholders' equity 180,211 124,394 - ---------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $378,119 $352,686 ================================================================================================================
The accompanying notes are an integral part of these consolidated statements. 27 THE BON-TON STORES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
FISCAL YEAR ENDED --------------------------------------- JANUARY 30, JANUARY 31, FEBRUARY 1, (In thousands except share and per share data) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------ NET SALES $ 674,871 $ 656,399 $ 626,482 OTHER INCOME, NET 2,350 2,349 2,430 - ------------------------------------------------------------------------------------------------------ 677,221 658,748 628,912 - ------------------------------------------------------------------------------------------------------ COSTS AND EXPENSES: Costs of merchandise sold 426,730 413,846 395,563 Selling, general and administrative 209,407 202,850 197,315 Depreciation and amortization 13,281 12,882 12,758 Unusual income (Note 13) --- --- (3,171) - ------------------------------------------------------------------------------------------------------ INCOME FROM OPERATIONS 27,803 29,170 26,447 INTEREST EXPENSE, NET 9,396 13,202 14,687 - ------------------------------------------------------------------------------------------------------ INCOME BEFORE INCOME TAXES 18,407 15,968 11,760 INCOME TAX PROVISION 7,196 6,270 4,949 - ------------------------------------------------------------------------------------------------------ INCOME BEFORE EXTRAORDINARY ITEM 11,211 9,698 6,811 EXTRAORDINARY ITEM - loss on early extinguishment of debt, net of income tax benefit of $251 --- (446) --- - ------------------------------------------------------------------------------------------------------ NET INCOME $ 11,211 $ 9,252 $ 6,811 ====================================================================================================== PER SHARE AMOUNTS -- BASIC: Net income before extraordinary item $ 0.81 $ 0.87 $ 0.62 Effect of extraordinary item --- (0.04) --- - ----------------------------------------------------------------------------------------------------- Net income $ 0.81 $ 0.83 $ 0.62 ====================================================================================================== BASIC SHARES OUTSTANDING 13,866,000 11,122,000 11,064,000 DILUTED: Net income before extraordinary item $ 0.81 $ 0.85 $ 0.61 Effect of extraordinary item --- (0.04) --- - ----------------------------------------------------------------------------------------------------- Net income $ 0.81 $ 0.81 $ 0.61 ====================================================================================================== DILUTED SHARES OUTSTANDING 13,917,000 11,377,000 11,106,000
The accompanying notes are an integral part of these consolidated statements. 28 THE BON-TON STORES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Class A Additional Common Common Paid-in Deferred Retained (In thousands) Stock Stock Capital Compensation Earnings Total - ------------------------------------------------------------------------------------------------------- Balance at February 3, 1996 $ 83 $30 $ 58,197 $(1,774) $47,638 $104,174 Net income --- --- --- --- 6,811 6,811 Deferred compensation amortization --- --- --- 505 --- 505 Cancellation of Restricted Shares --- --- (15) 10 --- (5) - ------------------------------------------------------------------------------------------------------- Balance at February 1, 1997 83 30 58,182 (1,259) 54,449 111,485 Net income --- --- --- --- 9,252 9,252 Issuance of stock under Stock Award Plans 2 --- 2,094 (1,256) --- 840 Deferred compensation amortization --- --- --- 505 --- 505 Exercised stock options 3 --- 2,314 --- --- 2,317 Cancellation of Restricted Shares --- --- (5) --- --- (5) - ------------------------------------------------------------------------------------------------------- Balance at January 31, 1998 88 30 62,585 (2,010) 63,701 124,394 Net income --- --- --- --- 11,211 11,211 Secondary Stock Offering 31 --- 43,386 --- --- 43,417 Issuance of stock under Stock Award Plans 3 --- 1,949 (2,262) --- (310) Deferred compensation amortization --- --- --- 943 --- 943 Exercised stock options 1 --- 732 --- --- 733 Cancellation of Restricted Shares --- --- (392) 215 --- (177) - ------------------------------------------------------------------------------------------------------- Balance at January 30, 1999 $123 $30 $108,260 $(3,114) $74,912 $180,211 - -------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated statements. 29 THE BON-TON STORES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED ---------------------------------------- JANUARY 30, JANUARY 31, FEBRUARY 1, (In thousands) 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 11,211 $ 9,252 $ 6,811 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 13,281 12,882 12,758 Bad debt and other noncash charges 1,770 700 924 Stock compensation expense 441 1,345 505 Gain on sale of property, fixtures and equipment (1,291) (17) (407) Cancellation of Restricted Shares (177) (5) (5) Decrease (increase) in other long-term assets 143 (80) 320 Deferred income tax (743) (1,210) 4,116 Decrease in other long-term liabilities (50) (523) (476) Extraordinary loss on debt extinguishment --- 697 --- Restructuring payments (449) (580) (1,252) Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (2,961) (34,879) 216 Increase in merchandise inventories (15,090) (16,592) (19,450) Decrease (increase) in prepaid expenses and other current assets 543 9,554 (4,827) Decrease in income taxes receivable --- --- 8,549 Increase (decrease) in accounts payable 15,970 3,852 (3,542) Increase (decrease) in accrued expenses 1,851 3,343 (6,823) Increase in income taxes payable 1,352 4,551 1,334 ---------------------------------------- Total adjustments 14,590 (16,962) (8,060) ---------------------------------------- Net cash provided by (used in) operating activities 25,801 (7,710) (1,249) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, net (19,418) (10,978) (9,730) Proceeds from sale of property, fixtures and equipment 3,004 17 855 Proceeds from sale of accounts receivable, net (5,000) 22,000 --- Proceeds from Sale and Leaseback arrangement --- 10,841 --- ---------------------------------------- Net cash (used in) provided by investing activities (21,414) 21,880 (8,875) CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term debt and capital lease obligations (309,339) (320,996) (233,826) Proceeds from issuance of long-term debt 262,300 307,102 220,125 Proceeds from issuance of mortgages --- --- 23,400 Proceeds from equity offering 43,417 --- --- Exercised stock options 733 2,317 --- ---------------------------------------- Net cash (used in) provided by financing activities (2,889) (11,577) 9,699 Net increase (decrease) in cash and cash equivalents 1,498 2,593 (425) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,109 6,516 6,941 ---------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,607 $ 9,109 $ 6,516 ========================================
The accompanying notes are an integral part of these consolidated statements. 30 THE BON-TON STORES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) The Bon-Ton Stores, Inc., a Pennsylvania corporation, was incorporated on January 31, 1996 as the successor of a company established on January 31, 1929 and currently operates as one business segment, through its subsidiaries, 65 retail department stores located in Pennsylvania, New York, Maryland, Massachusetts, West Virginia and New Jersey. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ---------------------------------------------- BASIS OF PRESENTATION The consolidated financial statements include the accounts of The Bon-Ton Stores, Inc. and its wholly-owned subsidiaries (the "Company"). All intercompany transactions have been eliminated in consolidation. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires that management make estimates and assumptions which affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FISCAL YEAR The Company's fiscal year ends on the Saturday nearer to January 31 of the following calendar year, and consisted of fifty-two weeks for fiscal years 1998, 1997 and 1996. Fiscal years 1998, 1997 and 1996 ended on January 30, 1999, January 31, 1998 and February 1, 1997, respectively. CASH AND CASH EQUIVALENTS The Company considers all highly liquid short-term investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents are generally overnight money market investments. MERCHANDISE INVENTORIES For both financial reporting and tax purposes, merchandise inventories are determined by the retail method, using a LIFO (last-in, first-out) cost basis. The estimated cost to replace inventories was $193,823 and $180,083 as of January 30, 1999 and January 31, 1998, respectively. PROPERTY, FIXTURES AND EQUIPMENT: DEPRECIATION AND AMORTIZATION Depreciation and amortization of property, fixtures and equipment are computed using the straight-line method based upon the following average estimated service lives (or remaining lease terms): Buildings................ 20 to 40 years Leasehold improvements... 15 years Fixtures and equipment... 5 to 10 years No depreciation is recorded until property, fixtures and equipment are placed into service. Property, fixtures and equipment not placed into service are classified as construction in progress. The Company capitalizes interest and lease costs incurred during the construction of any new facilities or major improvements. The amount of interest and lease costs capitalized is limited to that incurred during the construction period. Repair and maintenance costs are charged to operations as incurred. Property retired or sold is removed from the asset and accumulated depreciation accounts and the resulting gain or loss is reflected in income. The costs of major remodeling and improvements on leased stores are capitalized as leasehold improvements. Leasehold improvements are generally amortized over the shorter of the lease term or the useful life of the asset. Capital leases are recorded at the lower of fair market value or the present value of future minimum lease payments. Capital leases are amortized over the primary term. 31 THE BON-TON STORES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) STORE OPENING AND CLOSING COSTS The Company follows the practice of accounting for store opening costs incurred prior to opening a new retail unit as a current period expense. When the decision to close a retail unit is made, the Company provides for estimated future net lease obligations after store operations cease; nonrecoverable investments in property, fixtures and equipment; and other expenses directly related to discontinuance of operations. The estimates are based upon historical information along with certain assumptions about future events. Changes in the assumptions for store closing costs for such items as the estimated period of future lease obligations and the amounts actually realized relating to the carrying value of property, fixtures and equipment could cause these estimates to change. ADVERTISING Advertising production costs are expensed the first time the advertisement is run. Media placement costs are expensed in the period the advertising appears. Total advertising expenses included in selling, general and administrative expense for fiscal years 1998, 1997 and 1996 were $27,569, $27,095 and $28,747, respectively. Prepaid expenses and other current assets include prepaid advertising costs of $972 and $687 at January 30, 1999 and January 31, 1998, respectively. LEASED DEPARTMENT SALES The Company leases space to third parties in several of its stores and receives compensation based on a percentage of sales made in these departments. Other income, net, includes leased department rental income of approximately $2,590, $2,502 and $2,719 in fiscal 1998, 1997 and 1996, respectively. REVOLVING CHARGE ACCOUNTS Finance charge income on customers' revolving charge accounts is reflected as a reduction of selling, general and administrative expenses. The finance charge income earned by the Company, before considering the costs of administering and servicing the revolving charge accounts, for fiscal years 1998, 1997 and 1996 was $29,776, $25,019 and $19,502, respectively, and is a component of securitization income (see Note 4). STOCK-BASED COMPENSATION The Company follows Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), which provides for a fair value based method of accounting for grants of equity instruments to employees or suppliers in return for goods or services. As permitted under SFAS No. 123, the Company has elected to continue to account for compensation costs under the provisions prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The Company has included pro forma disclosures of net income and basic and diluted earnings per share in Note 10 as if the fair value based method had been applied in measuring compensation cost. EARNINGS PER SHARE In the fourth quarter of fiscal 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"). SFAS No. 128, which supersedes Accounting Principles Board Opinion No. 15, "Earnings per Share," requires dual presentation of Basic and Diluted earnings per share ("EPS") on the face of the statement of operations. Basic EPS is computed by dividing reported earnings available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed assuming the conversion of all dilutive securities, such as options and restricted stock. The effect of the adoption of SFAS No. 128 was immaterial to the financial statements of the Company. In accordance with SFAS No. 128, all prior period per share amounts have been restated to reflect the new calculation and presentation. The statement requires a reconciliation of the numerators and denominators used in the Basic and Diluted EPS calculations. The numerator, net income, is identical in both calculations. The following table presents a reconciliation of the shares outstanding for the respective calculations, as well as the calculated EPS for each period presented on the accompanying Consolidated Statements of Income. The EPS shown in the reconciliation represents EPS before the impact of extraordinary items. 32
1998 1997 1996 ----------------- ----------------- ----------------- Shares EPS Shares EPS Shares EPS ------------------------------------------------------- Basic Calculation 13,866,000 $0.81 11,122,000 $0.87 11,064,000 $0.62 Dilutive Securities--- Restricted Shares 25,000 72,000 10,000 Options 26,000 183,000 32,000 ------------------------------------------------------- Diluted Calculation 13,917,000 $0.81 11,377,000 $0.85 11,106,000 $0.61 ------------------------------------------------------- Antidilutive shares and options --- Restricted Shares 388,000 132,000 208,000 Options 1,068,000 654,000 1,049,000
Antidilutive shares and options, consisting of restricted shares and options to purchase shares outstanding, were excluded from the computation of dilutive securities due to the Company's net loss position in the first three quarters of 1998 and 1996 and the first two quarters of 1997. In addition, antidilutive options to purchase shares during the remaining four quarters were excluded from the computation of dilutive securities due to exercise prices greater than the average market price during the quarters of fiscal 1998, 1997 and 1996. The following table reflects the approximate dilutive securities calculated under the treasury stock method had the Company reported consecutive quarterly net profits for the corresponding fiscal years:
1998 1997 1996 ------- ------- ------- Approximate Dilutive Securities --- Restricted Shares 90,000 108,000 24,000 Options 291,000 248,000 138,000
Options to purchase shares with exercise prices greater than the average market price were excluded from the above table for 1998, 1997 and 1996 in the approximate amounts of 244,000, 311,000 and 806,000, respectively, as they would have been antidilutive. TRANSFERS AND SERVICING OF FINANCIAL ASSETS In June 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No. 125"). Under SFAS No. 125, a transfer of financial assets in which the transferor surrenders control over those assets is accounted for as a sale to the extent consideration other than beneficial interests in the transferred assets is received in exchange. It also requires that servicing assets and other retained interests in the transferred assets be measured by allocating the previous carrying amount between assets sold, if any, and retained interests, if any, based on their relative fair value at the date of transfer. The adoption of this statement on January 1, 1997 did not have a material effect on the consolidated financial results of the Company. FUTURE ACCOUNTING CHANGES In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and for Hedging Activities" ("SFAS No. 133"). This statement requires every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 also requires changes in the derivative's fair value be recognized currently in earnings unless specific hedge criteria are met. SFAS No. 133 also requires the Company to formally document, designate and assess the effectiveness of transactions that receive hedge accounting. By requiring greater use of fair-value accounting, SFAS No. 133 has the potential to increase volatility in earnings and other comprehensive income. The Company will adopt SFAS No. 133 in fiscal 2000 and its effect is not anticipated to impact the operating results of the Company, as only cash flow hedges are utilized by the Company and their change will be reported through comprehensive income. 33 THE BON-TON STORES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. DEBT -------- Debt consisted of the following:
JANUARY 30, JANUARY 31, 1999 1998 - ---------------------------------------------------------------------------------------------------------- Revolving credit agreement -- principal payable April 15, 2000; interest payable periodically at varying rates (7.40% for fiscal year 1998) $42,770 $ 88,900 Mortgage notes payable -- principal payable in varying monthly installments through June 2015; interest 9.62%; secured by land and buildings 21,484 21,918 Mortgage note payable -- principal and interest in monthly installments of $68 through January 2001, with a balloon payment in February 2001; interest 11.00%; secured by buildings 6,248 6,359 Mortgage notes payable -- principal payable February 1, 2012; interest payable monthly at various rates; secured by a building 4,500 4,500 -------------------- Total debt 75,002 121,677 Less: current maturities 615 556 -------------------- Long-term debt $74,387 $121,121 ====================
In April 1997, the Company entered into a three-year revolving credit agreement ("Credit Facility") with several financial institutions, replacing the Company's previous $86,250 term loan and $85,000 revolving credit agreement. The new agreement provides for a borrowing base, with subjective elements, determined upon eligible inventory and selected fixed assets and real estate, up to an aggregate principal amount of $200,000. As of January 30, 1999, the Company borrowed $42,770 with $69,670 of borrowings remaining available under this agreement. The interest charged under this agreement, based on LIBOR or an index rate plus an applicable margin, is determined by a formula based on the Company's interest coverage ratio (defined as the ratio of earnings before interest, taxes, depreciation and amortization (EBITDA) to interest expense). In connection with the repayment of the previous term loan and revolving credit agreement, the Company recognized a one-time extraordinary after-tax charge of $446, or $0.04 per share, in fiscal 1997. The Company maintains an interest rate swap portfolio which allows the Company to convert variable rate borrowings to fixed rates. The following table indicates the notional amounts, and the range of interest rates paid and received by the Company as of January 30, 1999 and January 31, 1998:
January 30, January 31, 1999 1998 ------------ ------------ Fixed swaps (notional amount) $80,000 $60,000 Range of receive rate 5.06%-5.70% 5.56%-6.24% Range of pay rate 5.66%-6.06% 5.97%-8.06%
The interest rate swap agreements will expire on various dates from November 27, 2000 to September 2, 2003. The net income or expense from the exchange of interest rate payments is included in interest expense. The estimated fair value, based on dealer quotes, of the interest rate swap agreements at January 30, 1999 and January 31, 1998 was a loss of $2,308 and $1,261, respectively, and represents the amount the Company would pay if the agreements were terminated as of such dates. Several of the Company's loan agreements contain restrictive covenants, including a minimum trade support ratio, a minimum fixed charge ratio and limitations on dividends, additional incurrence of debt and capital expenditures. The fair value of the Company's debt, excluding interest rate swaps, is estimated at $76,480 and $122,310 on January 30, 1999 and January 31, 1998, respectively, and is based on an estimate of the rates available to the Company for debt with similar features. 34 Debt maturities, based upon the amended debt financing (see Note 16), as of January 30, 1999, are as follows:
--------------------------------------------- 1999 $ 615 2000 670 2001 6,542 2002 642 2003 709 2004 and thereafter 65,824 ------- $75,002 =======
3. INTEREST COSTS ------------------ Interest and debt costs were:
FISCAL YEAR ENDED --------------------------------------------- JANUARY 30, JANUARY 31, FEBRUARY 1, 1999 1998 1997 --------------------------------------------------------------------------------------------- Interest cost incurred $9,681 $13,441 $14,955 Interest income (110) (234) (153) Capitalized interest, net (175) (5) (115) ------------------------------------------ Interest expense, net $9,396 $13,202 $14,687 ========================================== Interest paid $9,128 $12,887 $14,898 ==========================================
4. SALE OF RECEIVABLES ----------------------- The Company securitizes its private credit card portfolio through an accounts receivable facility (the "Facility"). Under the securitization agreement, which expires in January 2000 and is contingent upon the receivables meeting certain performance criteria, the Company has the option to sell through The Bon-Ton Receivables Partnership, LP ("BTRLP"), a wholly-owned subsidiary of the Company, up to $150,000 of an undivided percentage interest in the receivables, on a limited recourse basis. BTRLP assets of $35,157 and $27,979 as of January 30, 1999 and January 31, 1998, respectively, were included in the accompanying Consolidated Balance Sheets and consist primarily of its retained interest in receivables initially purchased from the Company and sold under the Facility. The Company accounts for its retained interest in the receivables in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The Company has not recognized any unrealized gains or losses on its retained interest as the current carrying value of customers' revolving charge accounts receivable is a reasonable estimate of fair value since the average interest rates approximate current market origination rates. Creditors of BTRLP have a claim on BTRLP's assets prior to any equity in BTRLP becoming available to creditors of the Company. As of January 30, 1999 and January 31, 1998, credit card receivables were sold under the above referenced agreement in the amount of $127,000 and $132,000, respectively. BTRLP holds a participating interest in an undivided ownership interest in the receivables sold. This interest is required to be held under terms of the agreement to provide credit support against future losses and is subject to lien. The amount subject to credit support amounted to $29,360 and $21,071 at January 30, 1999 and January 31, 1998, respectively. New receivables are sold on a continual basis to replenish the investors' respective level of participation in receivables which have been repaid by the credit card holders. The Company does not recognize a servicing asset or liability, as the amount received for servicing the receivables is a reasonable approximation of market rates and servicing costs. The net impact on earnings in connection with the sale of receivables under this agreement was not significant. However, under the terms of the sale agreement, the Company receives securitization income equal to the excess of the finance charges collected on the receivables over the rate paid, which is based on variable or fixed rate pricing alternatives, less the credit losses which are payable under the recourse provisions of these agreements. The Company also continues to service the accounts. Securitization income, before consideration of servicing expenses other than the rate paid in these securitization transactions and credit losses, was approximately $7,587, $8,410 and $6,211 in fiscal 1998, 1997 and 1996, respectively. Securitization income and servicing expenses are reported as components of selling, general and administrative expenses. Although the Company receives positive securitization cash flow, an interest-only strip has not been recorded due to the short life of the receivables and to provide for credit losses under the recourse provision of the Facility. 35 THE BON-TON STORES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. PROPERTY, FIXTURES AND EQUIPMENT ------------------------------------ As of January 30, 1999 and January 31, 1998, property, fixtures and equipment and the related accumulated depreciation and amortization consisted of:
JANUARY 30, JANUARY 31, 1999 1998 ----------- ----------- Land $ 660 $ 1,171 Buildings and leasehold improvements 105,305 94,635 Furniture and equipment 94,675 89,128 Buildings under capital leases 5,052 5,052 -------- -------- 205,692 189,986 Less: Accumulated depreciation and amortization 93,171 81,418 -------- -------- $112,521 $108,568 ======== ========
Property, fixtures and equipment with a net depreciated cost of approximately $40,056 and $41,336 are pledged as collateral for secured loans at January 30, 1999, and January 31, 1998, respectively. On February 17, 1998, the Company sold its vacant property in Downtown Lancaster, Pennsylvania. The property, which was acquired during the 1992 acquisition of Watt and Shand, Inc., was closed in March 1995. The Company recognized a gain during the first quarter of 1998 of $1.4 million on the disposal of this property, which included the remaining store closing reserve established in 1994. The gain was reflected as a reduction of selling, general and administrative expense. The net proceeds of $1.2 million received from the sale were used to fund additional working capital requirements. On November 20, 1998, the Company sold its vacant property in Downtown Allentown, Pennsylvania. The property was acquired during the 1994 acquisition of certain assets from Hess's Department Stores, Inc. The property was closed in January 1996. No gain or loss was recognized on this transaction as the Company utilized $1.0 million of the store closing reserve established for this property. The net proceeds of $1.5 million received from the sale were used to fund additional working capital requirements. 6. COMMITMENTS AND CONTINGENCIES --------------------------------- LEASES The Company is obligated under capital and operating leases for a major portion of its store properties. Certain leases provide for additional rental payments based on a percentage of sales in excess of a specified base (contingent rentals) and for payment by the Company of operating costs (taxes, maintenance and insurance). Also, selling space has been licensed to other retailers in many of the Company's leased facilities. At January 30, 1999, future minimum lease payments under operating leases and the present value of net minimum lease payments under capital leases are as follows:
Fiscal Year CAPITAL LEASES OPERATING LEASES - ------------------------------------------------------------------------------------ 1999 $ 579 $ 16,277 2000 579 15,506 2001 579 13,428 2002 300 11,775 2003 300 11,446 2004 and thereafter 500 64,243 ------------------------ Total net minimum rentals 2,837 $132,675 ======== Less: Amount representing interest 560 ------ Present value of net minimum lease payments, of which $409 is due within one year $2,277 ======
Minimum rental commitments under operating leases detailed earlier are reflected without reduction for rental income due in future years under noncancellable subleases since the amounts are immaterial. Some of the store leases contain renewal options ranging from two to thirty-five years. Included in the minimum lease payments under operating leases are leased vehicles, copiers and computer equipment, as well as related-party commitments with the Company's majority shareholder and related entities of $625, $451, $481, $481, $481 and $4,328 for fiscal 1999, 2000, 2001, 2002, 2003 and 2004 and thereafter, respectively. 36 Rental expense consists of the following:
FISCAL YEAR ENDED ------------------------------------------- JANUARY 30, JANUARY 31, FEBRUARY 1, 1999 1998 1997 ----------- ----------------- ----------- Operating leases: Buildings: Minimum rentals $14,597 $13,898 $13,660 Contingent rentals 2,710 2,636 2,374 Fixtures and equipment 1,230 1,332 750 Contingent rentals on capital leases 399 410 357 ------- ------- ------- Totals $18,936 $18,276 $17,141 ======= ======= =======
CONTINGENCIES The Company has been named, together with other department stores and Nine West Group, Inc., as a defendant in a number of antitrust class action lawsuits which have been consolidated in the United States District Court of the Southern District of New York. These lawsuits allege that the defendants engaged in conduct in violation of the antitrust laws relating to the sale of shoes manufactured by Nine West, and seek unspecified damages against all defendants. The Company and its counsel believes these claims are without merit and intends to vigorously defend these lawsuits. The Company is party to legal proceedings and claims which arise during the ordinary course of business. In the opinion of management, the ultimate outcome of all such litigation and claims will not have a material adverse effect on the Company's financial position or results of its operations. 7. SHAREHOLDERS' EQUITY ------------------------ The Company's capital structure consists of Common Stock with one vote per share and Class A Common Stock with ten votes per share. In addition, the Company has 5.0 million shares of preferred stock authorized; however, none of these shares have been issued. Transfers of the Company's Class A Common Stock are restricted. Upon sale or transfer of ownership or voting rights to other than permitted transferees, as defined, such shares will convert to an equal number of shares of Common Stock. On May 1, 1998, the Company sold 3.1 million shares of its Common Stock pursuant to a public offering. The net proceeds received of $43.4 million will be used to expand and upgrade existing stores, open new stores, provide working capital and for general corporate purposes. Pending such uses, the Company used the proceeds to reduce indebtedness under the Credit Facility. 8. INCOME TAXES ---------------- The Company accounts for income taxes according to Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Under SFAS No. 109, deferred tax assets and liabilities are computed based on the difference between the financial statement and income tax basis of assets and liabilities using applicable current marginal tax rates. Components of the income tax provision are as follows:
FISCAL YEAR ENDED ------------------------------------------ JANUARY 30, JANUARY 31, FEBRUARY 1, 1999 1998 1997 - -------------------------------------------------------------------------- Federal and State: Current $7,939 $ 7,480 $ 833 Deferred (743) (1,210) 4,116 ------------------------------------------ Total $7,196 $ 6,270 $4,949 ==========================================
37 THE BON-TON STORES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Components of gross deferred tax assets and liabilities were comprised of the following:
JANUARY 30, JANUARY 31, 1999 1998 ----------------------------------------------------------------------- Deferred tax assets: Accrued expenses $1,635 $1,560 Restricted Shares 1,432 1,096 Bad debt reserve 1,329 712 Store closings 1,011 1,969 Sale and leaseback 976 1,030 Loss carryforward 270 324 Capital leases 116 140 Other --- 168 Valuation allowance (204) (288) -------------------- Total gross deferred tax assets $6,565 $6,711 ==================== Deferred tax liabilities: Fixed assets $4,400 $4,740 Inventory 1,692 2,155 Other 1,322 1,408 -------------------- Total gross deferred tax liabilities $7,414 $8,303 ====================
The loss carryforward at January 30, 1999 relates to the acquisition of Adam, Meldrum & Anderson Co., Inc. and will expire in January 2009. The valuation allowance relates to the deferred tax assets that result from accrued expenses that are not deductible for tax purposes due to the limitations arising from Section 162 of the Internal Revenue Code of 1986, as amended ("IRC 162"), relating to deductions for executive compensation. No other deferred tax assets have associated valuation allowances since these tax benefits are realizable through the reversal of existing deferred tax liabilities and future taxable income. A reconciliation of the statutory federal income tax rate to the effective tax rate for fiscal 1998, 1997 and 1996 is presented below:
FISCAL YEAR ENDED ---------------------------------------------- JANUARY 30, JANUARY 31, FEBRUARY 1, 1999 1998 1997 - ----------------------------------------------------------------------------------------------- Tax at statutory rate 35.0% 35.0% 35.0% Book expense in excess of IRC 162 limitation 0.7 2.3 3.6 State income taxes, net of federal benefit 1.0 1.0 1.0 Excise tax on pension termination --- --- 3.4 Internal Revenue Service audit closure 1.9 --- --- Other, net 0.5 1.0 (0.9) ---------------------------------------------- Total 39.1% 39.3% 42.1% ==============================================
In fiscal 1998 and 1997, the Company made income tax payments of $6,397 and $2,194, respectively. The Company received income tax refunds, net of payments, of $8,641 in fiscal 1996. 9. EMPLOYEE BENEFIT PLANS -------------------------- The Company provides eligible employees with retirement benefits under a 401(k) salary reduction and profit sharing plan (the "Plan"). Employees are eligible to participate in the Plan after they reach the age of 21, complete one year of service and work at least 1,000 hours in any calendar year. Under the 401(k) provisions of the Plan, the majority of eligible employees may contribute up to 15% of their compensation to the Plan. Company matching contributions, not to exceed 5% of eligible employees' compensation, are at the discretion of the Company's Board of Directors. Company matching contributions under the 401(k) provisions of the Plan become fully vested for eligible employees after three years of service. Contributions to the Plan under the profit sharing provisions are at 38 the discretion of the Company's Board of Directors. These profit sharing contributions become fully vested after five years of service. The Company contributed $1,422, $1,350 and $1,200 in fiscal 1998, 1997 and 1996, respectively, under the profit sharing provisions of the Plan. In addition to the above plans, the Company maintains a non-qualified compensation plan for a select group of management employees. The Company's fiscal 1998, 1997 and 1996 expense under the aforementioned benefit plans was $1,798, $1,951 and $1,932, respectively. In December 1995, the Company merged the Adam, Meldrum and Anderson Co., Inc. Pension Plan into the Hess's Department Stores, Inc. Employees' Pension Plan. These defined benefit pension plans (the "Merged Plan") covered substantially all the former employees of Adam, Meldrum and Anderson Co., Inc. and Hess's Department Stores, Inc., respectively. The Adam, Meldrum and Anderson Co., Inc. Pension Plan was curtailed in fiscal 1992 by the former owners. The Hess's Department Stores, Inc. Employees' Pension Plan was overfunded at the time of the purchase of certain assets of Hess's Department Stores, Inc. Due to the overfunded status of the Merged Plan, an asset was recorded in the purchase price allocation for the estimated net realizable value of the overfunded plan at the expected termination date. In April 1996, the Company began the termination process of the Merged Plan. The participants' obligations were settled through an election by the participants of either a lump sum payout or an annuity purchase. The settlement of participants' obligations was completed in November 1996. As a result of this settlement, the Company recorded a gain in fiscal 1996 of $3,171, net of $1,132 Federal excise tax expense, to recognize the value of assets to be reverted to the Company in excess of the asset established in purchase accounting. Completion of the funds reversion occurred in November 1997. Total funds reverted to the Company amounted to $6,005, net of $1,132 Federal excise taxes paid. Additionally, the Company also transferred $2,007 to the Company's profit sharing plan of which $1,200 was used to fund the Company's 1996 contribution. The remaining balance in the Plan partially funded the Company's 1997 contribution of $1,350. 10. STOCK AWARD PLANS ---------------------- The Company's Amended and Restated 1991 Stock Option and Restricted Stock Plan (the "Stock Plan"), as amended through June 17, 1997, provides for the granting of the following options and awards to certain associates, officers, directors, consultants and advisors: Common Stock options; performance-based Common Stock options as part of a long-term incentive plan for selected officers; and Common Stock awards subject to substantial risk of forfeiture ("Restricted Shares"). The maximum number of shares to be granted under the Stock Plan, less forfeitures, is 1,900,000 shares. In addition to the Stock Plan, during 1991 the Board of Directors approved a Phantom Equity Replacement Plan (the "Replacement Plan") to replace the Company's previous deferred compensation arrangement that was structured as a phantom stock program. Options granted under the Stock Plan, excluding Restricted Share awards, are generally issued at the market price of the Company's stock on the date of grant, vest over three to five years and have a ten-year term. Grants under the Replacement Plan vest over approximately one to six years and have a thirty-year term. The Company amended its Management Incentive Plan (the "MIP Plan") in 1997 to provide, at the election of each participant, for bonus awards to be received in vested Restricted Shares in lieu of cash on the satisfaction of applicable performance goals. The maximum number of shares to be granted under the MIP Plan is 300,000, with no additional shares to be issued after July 1998. Pursuant to Mr. Wilansky's Employment Agreement (see Note 12), the Company implemented The Bon-Ton Stores, Inc. Performance Based Stock Incentive Plan for Heywood Wilansky (the "Stock Incentive Plan"). The Stock Incentive Plan provides performance-based compensation to Mr. Wilansky in the form of stock bonuses granted in connection with services provided. The maximum number of shares available under the Stock Incentive Plan is 500,000. Compensation cost charged to operations, calculated using the intrinsic value method as required by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," was $441, $1,345 and $505 in fiscal 1998, 1997 and 1996, respectively. Had the Company recorded compensation expense using the fair value based 39 THE BON-TON STORES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) method as discussed in SFAS No. 123, "Accounting for Stock-Based Compensation," net income and earnings per share would have been reduced to the pro forma amounts indicated below:
1998 1997 1996 ---------------------------------------------------------- Net income As reported $11,211 $9,252 $6,811 Pro forma 10,154 8,416 5,987 Earnings per share Basic As reported $ 0.81 $ 0.83 $ 0.62 Pro forma 0.73 0.76 0.54 Diluted As reported $ 0.81 $ 0.81 $ 0.61 Pro forma 0.73 0.74 0.54
The Company used the Black-Scholes option pricing model to calculate the fair value of the stock options at the grant date. The following assumptions were used:
1998 1997 1996 ------ ------ ------ Expected option term in years 7.7 7.2 7.0 Stock price volatility factor 66.6% 61.5% 65.0% Dividend yield 0.0% 0.0% 0.0% Risk free interest rate 5.5% 6.3% 6.4%
A summary of the options under the Stock Plan follows:
RESTRICTED COMMON STOCK OPTIONS PERFORMANCE-BASED OPTIONS SHARES ------------------------------------------------------------------- NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF OPTIONS PRICE OPTIONS PRICE SHARES - ---------------------------------------------------------------------------------------------------------------------------- FISCAL 1996 February 3, 1996 637,750 $ 8.57 94,000 $ 8.67 281,440 Granted 131,286 $ 6.58 176,800 $ 6.13 --- Exercised --- --- --- --- (11,659) Forfeited (17,216) $ 8.69 (60,700) $ 7.25 (1,456) ------------------------------------------------------------------- February 1, 1997 751,820 $ 8.22 210,100 $ 6.94 268,325 =================================================================== Options exercisable at February 1, 1997 328,653 $ 9.54 --- --- --- Weighted average fair value of options granted during fiscal 1996 $ 4.40 $ 4.20 FISCAL 1997 Granted 134,300 $ 6.86 167,100 $ 7.25 --- Exercised (243,759) $ 6.04 --- --- (10,955) Forfeited (25,866) $10.32 --- --- (704) ------------------------------------------------------------------- January 31, 1998 616,495 $ 8.35 377,200 $ 7.08 256,666 =================================================================== Options exercisable at January 31, 1998 274,309 $10.03 --- --- --- Weighted average fair value of options granted during fiscal 1997 $ 4.84 $ 4.95 FISCAL 1998 Granted 151,400 $13.71 --- --- 35,000 Exercised (64,132) $ 8.72 --- --- (90,000) Forfeited (21,400) $ 8.13 (33,300) $11.25 --- ------------------------------------------------------------------- January 30, 1999 682,363 $ 9.50 343,900 $ 6.67 201,666 =================================================================== Options exercisable at January 30, 1999 399,753 $ 8.88 --- --- --- Weighted average fair value of options granted during fiscal 1998 $ 9.86 ---
The exercised shares in the above summary for Restricted Shares represent shares for which the restrictions have lapsed. 40 The range of exercise prices for the Common Stock options outstanding as of January 30, 1999 follows:
Range of Number of Options Weighted Average Weighted Average Number of Options Weighted Average Exercise Prices Outstanding Exercise Price Contractual Life Currently Exercisable Exercise Price - ---------------------------------------------------------------------------------------------------------------------------- $5.88 - $ 8.25 381,230 $ 6.71 4.0 years 234,270 $ 6.62 $9.00 - $13.00 164,733 $11.96 1.0 year 160,983 $12.02 $13.75 - $16.13 136,400 $14.34 1.8 years 4,500 $14.25
The range of exercise prices for the performance-based options was $6.13 to $7.25, with a weighted average contractual life of 7.6 years. A summary of the status of the Replacement Plan follows:
Discount Non-Discount Options Options - -------------------------------------------------------------------------- Exercise Price $3.25 $ 13.00 ----------------------- February 3, 1996 142,578 42,606 Exercised --- --- Forfeited --- --- ----------------------- February 1, 1997 142,578 42,606 Exercised (57,309) --- Forfeited --- (5,054) ----------------------- January 31, 1998 85,269 37,552 Exercised (36,080) --- Forfeited --- --- ----------------------- January 30, 1999 49,189 37,552
As of January 30, 1999, January 31, 1998 and February 1, 1997, the exercisable discounted options amounted to 49,189, 83,411 and 138,861, respectively, and exercisable non-discounted options amounted to 37,552, 36,122 and 39,746, respectively. The Company granted 202,300 Restricted Shares under the MIP Plan in fiscal 1997. No Restricted Shares vested or were forfeited during fiscal 1997. In fiscal 1998, the Company granted an additional 1,326 shares, the restriction lapsed on 39,466 shares pursuant to the MIP Plan and 47,022 shares were forfeited. No additional shares will be granted under the MIP Plan. The total shares outstanding under the MIP Plan as of January 30, 1999 were 117,138. Shares issued under the Stock Incentive Plan in fiscal 1998 were 250,000 Restricted Shares and options to purchase 250,000 shares with an exercise price of $8.00 per share. No shares or options were vested or forfeited during fiscal 1998. Cancellation of options and shares in the above plans resulted primarily from the termination of the employment of certain executives and voluntary forfeitures. 41 THE BON-TON STORES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. QUARTERLY RESULTS (UNAUDITED)
FISCAL QUARTER ENDED ----------------------------------------------------- MAY 2, AUGUST 1, OCTOBER 31, JANUARY 30, FISCAL 1998: 1998 1998 1998 1999 - ---------------------------------------------------------------------------------------------------------- Net sales $ 143,267 $ 145,731 $ 154,748 $ 231,125 Other income, net 499 475 424 952 ----------------------------------------------------- 143,766 146,206 155,172 232,077 ----------------------------------------------------- Costs of merchandise sold 91,435 91,460 97,047 146,788 Selling, general and administrative expenses 47,029 50,713 52,352 59,313 Depreciation and amortization 3,090 3,090 3,566 3,535 ----------------------------------------------------- Income from operations 2,212 943 2,207 22,441 Interest expense, net 2,633 2,089 2,483 2,191 ----------------------------------------------------- Income (loss) before income taxes (421) (1,146) (276) 20,250 Income tax provision (benefit) (175) (435) (109) 7,915 ----------------------------------------------------- Net income (loss) $ (246) $ (711) $ (167) $ 12,335 ===================================================== PER SHARE AMOUNTS --- BASIC: Net income (loss) $ (0.02) $ (0.05) $ (0.01) $ 0.84 ===================================================== BASIC SHARES OUTSTANDING 11,506,000 14,592,000 14,672,000 14,695,000 DILUTED: Net income (loss) $ (0.02) $ (0.05) $ (0.01) $ 0.83 ===================================================== DILUTED SHARES OUTSTANDING 11,506,000 14,592,000 14,672,000 14,900,000 FISCAL QUARTER ENDED ----------------------------------------------------- MAY 3, AUGUST 2, NOVEMBER 1, JANUARY 31, FISCAL 1997: 1997 1997 1997 1998 - ---------------------------------------------------------------------------------------------------------- Net sales $ 134,251 $ 137,994 $ 155,513 $ 228,641 Other income, net 491 472 457 929 ----------------------------------------------------- 134,742 138,466 155,970 229,570 ----------------------------------------------------- Costs of merchandise sold 84,936 86,152 97,212 145,546 Selling, general and administrative expenses 46,002 47,457 51,064 58,327 Depreciation and amortization 3,166 3,196 3,500 3,020 ----------------------------------------------------- Income from operations 638 1,661 4,194 22,677 Interest expense, net 3,549 3,223 3,254 3,176 ----------------------------------------------------- Income (loss) before income taxes (2,911) (1,562) 940 19,501 Income tax provision (benefit) (1,108) (594) 367 7,605 ----------------------------------------------------- Income (loss) before extraordinary item (1,803) (968) 573 11,896 Extraordinary item - loss on early extinguishment of debt, net of income tax benefit of $251 (446) --- --- --- ----------------------------------------------------- Net income (loss) $ (2,249) $ (968) $ 573 $ 11,896 ===================================================== PER SHARE AMOUNTS -- BASIC: Net income (loss) before extraordinary item $ (0.16) $ (0.09) $ 0.05 $ 1.06 Effect of extraordinary item (0.04) --- --- --- ----------------------------------------------------- Net income (loss) $ (0.20) $ (0.09) $ 0.05 $ 1.06 ===================================================== BASIC SHARES OUTSTANDING 11,073,000 11,075,000 11,082,000 11,261,000 DILUTED: Net income (loss) before extraordinary item $ (0.16) $ (0.09) $ 0.05 $ 1.00 Effect of extraordinary item (0.04) --- --- --- ----------------------------------------------------- Net income (loss) $ (0.20) $ (0.09) $ 0.05 $ 1.00 ===================================================== DILUTED SHARES OUTSTANDING 11,073,000 11,075,000 11,493,000 11,867,000
42 12. CHIEF EXECUTIVE OFFICER EMPLOYMENT --------------------------------------- The Company signed an agreement with Mr. Wilansky, effective February 1, 1998, to extend his employment as the Company's President and Chief Executive Officer through January 31, 2003. This new agreement provides for increased cash and stock-based compensation. Pursuant to the new agreement, the Company implemented the Stock Incentive Plan which provides performance-based compensation to Mr. Wilansky in connection with services provided by him during the term of the plan. The Stock Incentive Plan provided for the award of 250,000 Restricted Shares and an option to purchase 250,000 shares of Common Stock at $8.00 per share. The restricted shares, which on the date the performance requirement was met had a market value of $1,969, will be transferable to Mr. Wilansky in three equal installments on the last day of the Company's fiscal year which occurs on the third, fourth and fifth anniversaries of the agreement. The options will become exercisable in three equal installments on the day before the first, second and third anniversaries of the agreement. Should Mr. Wilansky leave the Company before the shares are transferred or the options become exercisable, these benefits will be forfeited except in certain limited circumstances. 13. UNUSUAL INCOME ------------------- In January 1997, the Company recorded unusual income of $3,171 before taxes, which is presented separately as a component of income from operations in the Consolidated Statements of Income. The income relates to a $4,303 gain that was recognized on the termination of the Merged Plan. The gain was partially offset by $1,132 for Federal excise tax that was paid when the pension assets were reverted to the Company. The asset reversion occurred during 1997 (see Note 9). 14. SALE AND LEASEBACK ARRANGEMENT ---------------------------------- In April 1997, the Company sold the land, building and leasehold improvements comprising its department store in Johnstown, Pennsylvania and distribution center in Allentown, Pennsylvania and subsequently leased the facilities back under a twenty-year lease. The lease has been accounted for as an operating lease for financial reporting purposes. Annual payments under the operating lease agreement are $1,270. The $10,841 of net proceeds received from the sale were used to pay down indebtedness of $8,208 and to provide additional working capital. The gain associated with the sale, totaling $2,986, has been deferred in other long-term liabilities and is being amortized on a straight-line basis over the twenty-year lease term. 15. RESTRUCTURING ------------------ In fiscal 1995, the Company recorded a restructuring charge of $5,690 for store closings and workforce reductions. The amounts charged against the restructuring reserve for fiscal 1998, 1997 and 1996 are as follows:
1998 1997 1996 ------------------------------------------------------------------------ Beginning of year balance $2,895 $3,475 $ 5,277 Severance paid --- --- (277) Store closing costs (449) (580) (1,525) --------------------------------- End of year balance $2,446 $2,895 $ 3,475 ====== ====== =======
It is anticipated that the remaining accrual which relates to a leased property located in Johnstown, Pennsylvania will be utilized through the end of 2005. 16. SUBSEQUENT EVENTS --------------------- On March 23, 1999, the Company acquired the leasehold interests and certain other assets in three department stores located in Hamden, Connecticut, Red Bank, New Jersey and Brick Township, New Jersey, through a bankruptcy auction, for a cash purchase price of $2,185. The leasehold interests were held by Steinbach Stores, Inc., a wholly-owned subsidiary of Crowley, Milner and Company. Certain fixed assets and customer lists were included in the purchase. The Company anticipates, subject to finalization of legal proceedings and closing of the transactions, to take possession of these store premises by April 30, 1999. After completion of the remodeling, the Company plans to open these stores in the fall of fiscal 1999. This business combination will be accounted for under the purchase method. On April 7, 1999, the Company amended the Credit Facility (see Note 2) to extend the term of the facility to April 15, 2004. The amended agreement will extend the available fixed assets and real estate borrowing base and provide a more favorable interest pricing structure, with substantially all other terms and conditions remaining unchanged. As a result of this transaction, the Company will incur a one-time pre-tax charge of $610 in the first quarter of fiscal 1999 relating to the early extinguishment of debt. 43 THE BON-TON STORES, INC. AND SUBSIDIARIES REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- To the Shareholders of The Bon-Ton Stores, Inc.: We have audited the accompanying consolidated balance sheets of The Bon-Ton Stores, Inc. (a Pennsylvania corporation) and subsidiaries as of January 30, 1999 and January 31, 1998 and the related consolidated statements of income, shareholders' equity and cash flows for each of the three fiscal years in the period ended January 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Bon-Ton Stores, Inc. and subsidiaries as of January 30, 1999 and January 31, 1998, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended January 30, 1999 in conformity with generally accepted accounting principles. Philadelphia, PA /s/ Arthur Andersen LLP March 2, 1999 (Except with respect to the matter discussed in Note 16, as to which the date is April 7, 1999.) 44 EX-21 6 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT The Bon-Ton Department Stores, Inc., a Pennsylvania corporation The Bon-Ton Corp., a Delaware corporation The Bon-Ton Stores of Lancaster, Inc., a Pennsylvania corporation The Bon-Ton National Corp., a Delaware corporation The Bon-Ton Trade Corp., a Delaware corporation BTRGP, Inc., a Pennsylvania corporation The Bon-Ton Receivables Partnership, L. P., a Pennsylvania limited partnership The Bon-Ton Properties - Greece Ridge G. P., Inc., a New York corporation The Bon-Ton Properties - Greece Ridge L. P., a Delaware limited partnership The Bon-Ton Properties - Irondequoit G. P., Inc., a New York corporation The Bon-Ton Properties - Irondequoit L. P., a Delaware limited partnership The Bon-Ton Properties - Marketplace G. P., Inc., a New York corporation The Bon-Ton Properties - Marketplace L. P., a Delaware limited partnership The Bon-Ton Properties - Eastview G. P., Inc., a New York corporation The Bon-Ton Properties - Eastview L. P., a Delaware limited partnership EX-23 7 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated March 2, 1999 (except with respect to the matter discussed in Note 16 to the consolidated financial statements, as to which the date is April 7, 1999) included in this Form 10-K, into the Company's previously filed Form S-8 Registration Statements, Registration Nos. 33-43105, 33-51954, 333-36633, 333- 36661, 333-36725, and 333-58591. /s/ Arthur Andersen LLP Philadelphia, PA April 23, 1999 EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JANUARY 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JAN-30-1999 FEB-01-1998 JAN-30-1999 10,607 0 38,369 3,692 192,872 246,448 205,692 93,171 378,119 117,471 76,255 0 0 153 180,058 378,119 674,871 677,221 426,730 649,418 0 0 9,396 18,407 7,196 11,211 0 0 0 11,211 0.81 0.81 EPS has been prepared in accordance with SFAS No. 128, and that basic and diluted EPS have been entered in place of primary and fully diluted, respectively.
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